The answer given for this is A and B My doubt is if toluene is an accepted IUPAC name then why not chlorobenzene?(If that is the reason why the answer is given wrong)
Or else is there any other reason why the option C is wrong?
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In the generation of a preferred IUPAC name (PIN), the locant '1' may only be omitted under certain circumstances, as stipulated by Rule P-126.96.36.199 in Nomenclature of Organic Chemistry: IUPAC Recommendations and Preferred Names 2013.
(c) in monosubstituted homogeneous monocyclic rings, e.g. cyclohexanethiol (PIN) or bromobenzene (PIN) ...
Since 1-chloro-4-methylbenzene is not a monosubstituted ring, it does not fall under this category. Therefore, in the preferred IUPAC name, the locant '1' must be cited to avoid any ambiguity.
The omission of the locant '1' when there is no ambiguity is widespread, and is permissible within general nomenclature (refer to Loong's answer here). In this case, the omission of the locant '1' from the name "4-methyl-1-chlorobenzene" is likely to be unambiguous. However, note that the name "4-methyl-1-chlorobenzene" is not in accord with IUPAC nomenclature to begin with. Therefore, the abbreviated name "4-methylchlorobenzene" is probably not acceptable, either.
P-14.5.1 Simple prefixes (i.e. those describing atoms and unsubstituted substituents) are arranged alphabetically...
Since 'chloro' comes before 'methyl' in alphabetical order, the order of citation of substituents must be chloro followed by methyl; hence the correct name must be of the form x-chloro-y-methylbenzene.