Answer is B.
With $1$ node height is $0$.
Max height will come when each level contain min nodes.
Minimum Nodes in an AVL tree with height $n$ is $H(n) = H(n-1) + H(n-2) + 1$.
$H(0) = 1$.
$H(1) = 2$
$H(2) = H(1) + H(0) + 1 = 2+1+1 = 4$
$H(3) = H(2) + H(1) +1 = 4+2+1 = 7$.
So the max height with $7$ nodes is $3$.