Your Grant in Review: The rebuttal to critique

A recent query directed my way gives me an opportunity to discuss a grantsmithing subtlety I don’t believe I’ve discussed before. Not recently anyway.

Hello,
I discovered your blog recently, and thoroughly enjoy it. May I ask your opinion on the following, as I am at a loss as to how to interpret it. I submitted a revised R21 (A1) and received a score in the excellent range (two glowing critiques; mostly 1’s and 2’s), but no invitation to submit JIT information; I turned my attention to other matters.
[Prior to Council] I received an unexpected email from the PO, asking me to provide a one page rebuttal to overarching criticisms ASAP. I did so, and admittedly my spirits soared, thinking this is a very good sign. [Eventually it was communicated that Program had] determined that the proposal was meritous and had high potential, but that given the preliminary data in hand, it no longer ‘f’it’ the R21 program, and that I should submit it as an RO1. I am crushed.
My question: Can POs do this? Doesn’t Council determine appropriateness and fundability of proposals? What are my options?