Depends on the furniture. You sit "in" a seat, a recliner, a school desk or a (office) chair -- but sit "on" a couch, a bench, an ottoman or a stool.
If you were teaching and told a student to "sit on your chair and pay attention", the entire class would snicker at you. But if you said a glass of water was sitting "in" a chair, it would sound completely weird.
"That man is sitting in the chair" should also be an acceptable translation. I'd report it as "My answer should be accepted". Prepositions (and postpositions) are highly idiomatic, so the literal translation is not always the best. It can be पर in Hindi and still "in" in English, depending on the sentence and dialect.
I would also be more likely to say "sit in the chair" than "sit on the chair". I'd use "on" for a stool, maybe.
If you think it is wrong, then report it. It is still in beta and they are working out the kinks. Several of my reported suggestions have been accepted, so they are going through them. I'd imagine they have a lot of suggestions to sift through, so it takes them some time.
I find some inconsistencies in the translation of such verbs - sometimes as gerund and sometimes as simple present tense. Sometimes gerund is translated by adding होत / होति / होते, but this is not consistent. This explanation below is really throwing me off now. Hope to become clearer on it.