An alternative way to safely practice these below 500' is to go to one of the many non towered airports in Florida and practice from overhead.
Obviously with making all the appropriate radio calls and keeping a sharp look-out for traffic.
I agree there is little training benefit to the student if they never see the result; however there is an inherent risk to descending that low and a practice emergency may turn into a real one if the student jams the throttle forward in a go-around and causes a rich-cut in a carbureted engine.
Realism vs acceptable risk.
You don't take them into an actual cloud either to practice 180 degree turns on instruments do you?
Practice and simualtion have the inherent short coming that they only duplicate the real thing to a certain extent.
That being said, there is nothing illegal in flying below 500' in a sparsely populated area.
The Chief Pilot should have briefed the applicant prior to the check as to what was expected and as to when to initiate the go-around.
The student may very well just have been waiting for the "word" and as a result of that descended below 500'.
I do many 141 EOC checks and I would never consider that a reason for failure. I need to be satisfied that the student can make the field, then I will let them know to initiate the go-around.
On occasion, if we end up low, I will operate the throttle/prop/mixture on the go-around.
But as stated earlier, you may have been "FAR-legal" but not "school-legal" in which case you don't have a leg to stand on.
And this being real-life, and real-life not being fair; you will never win a battle against the Chief Pilot/Instructor.
They want it this way, you did it that way...end of story.
Not something you should loose your job over but if you do, send me a PM.