It certainly can. For example, Де банк? (Where's the bank?) Він тут. (It's here). Or Де кава? (Where's the coffee?) Вона тут. (It's here.) And Де авто? (Where's the car?) Воно тут. (It's here.)
In principle yes, but I cannot distinguish whether you are translating "він" and "вона" as "it" because you are thinking of these alternative translations, or because you didn't learn that they mean "he" and "she" :)
So, "it" is not accepted because Duo is testing your vocab.