That is well established usage of "based on," and I personally have always wondered whether the GMAT would consider it correct in some instances.
Now, here's the thing, I think that structures like that one are not always correct. There's the convention, and there's going too far. Consider the following examples:
Based on the satellite images, it will rain tomorrow.
Based on the data, the trains have been running on time more consistently.
OK, those do not involve the convention to which the above explanation refers.
Neither "it" nor "will rain" are based on anything.
Neither "trains" nor "have been running" are based on anything.
I think the convention works more like what we see in the following example:
Based on the study results, she concluded that the bacterium had mutated.
The sentence does not really make sense, but "concluded ... based on" is sort of like "she based her conclusion on." So, people say "based on, she concluded," and the GMAT has decided to go with it as correct.
That said, I would not be 100 percent surprised if the test went so far as to say that a sentence like the "based on ..., it will rain" or the "based on ..., the trains have been running" is correct. People do use sentences like those, even if they are even more illogical than "based on ..., she concluded.
The key thing to understand is that anything conventional can show up as correct in a Sentence Correction question, even if past Sentence Correction questions seem to have considered that conventional structure incorrect.
Sentence Correction evolves.
Are there any other obvious errors based on which, we can confidently eliminate answer option 'E'