Audio Format: Auto will require a HDMI connection to your receiver. PCM Multichannel is not compatible with other connection types, including optical and wireless for the connection to your receiver. Also, the receiver should be compatible with PCM Multichannel for such use.
Additionally, for Atmos, a direct connection between the Apple TV and AV receiver is recommended, as ARC connections do not have the bandwidth for the high bandwidth form (Dolby MAT) that Apple TV uses.
Play audio in Dolby Atmos or surround sound on your Apple TV - Apple Support
https://www.youtube.com/watch?v=8-VnDQxtn_Q
Victor Mendez uses an HDMI Audio Extractor (not an HDMI splitter as he keeps calling it) that may cause some the issues that he experiences, for his wish to be able to use either the TV or receiver without the other. He uses the optical connection to his receiver, which is not HDMI and not capable of PCM Multichannel, which then reverts back to PCM stereo as common denominator. He talks about the Auto setting as passthrough, which it isn’t. ‘Auto’ decodes any compatible audio stream into PCM Multichannel (up to 7.1). He doesn’t detail his connections, setup, and receiver capabilities enough for evaluation. But I don’t want to go into discussing his situation any further, as for this discussion, only your setup matters.
If you are using an optical cable to your receiver, than you are not getting Atmos sound anyway. If using this, you get any sound from an Atmos source, then maybe one of your other devices is converting to DD 5.1 instead?