It is a valid sentence in English. It changes the emphasized word.
Saying "What is it?" put's the emphasis on the "it" because you are curious about the "it." For example you were pointing to something and you wanted to know what it was.
Saying "It is what?" puts the emphasis on "what" where one is expressing disbelief or one was unclear about what one just heard. For example, someone just said "Your dog is a vampire" or "It is dead" and one might reply in English ... "It is WHAT?"
I've upvoted this because I would like to know if it's a correct literal translation (I know that the suggested English isn't finely expressed.) Instead, it's the meaning of खय that I am asking about. DL suggests "what" (an interrogative pronoun), "will" (a noun or a verb), or "deed" (a noun) as possible translations...
Another question: is खय the accusative object here? If so, is वह also a pronoun, rather than a demonstrative article (as seen in previous exercises)?