Unless you're a competitive weightlifter or similar, you're unlikely to see significant enough muscle loss with very significant calorie restriction over the kind of time frames people would stick to very strict diets like that for it to matter much.
I wouldn't do it every day, but mostly because I find it too hard, but I do currently aim for ~600 kcal 4-5 days a week to drop down. I do it in multiple small meals, but I've also done intermittent fasting with narrow feeding windows. On the remaining days, I eat normally - I don't binge.
It'd likely have more of a negative effect on my muscle mass if I did it every day, but if I did, I'd also reach my target weight far faster, so even if I'd had to spend time bulking up again later I'd have done that if I was able to stick to it, but I know from experience I'm not.
I also power lift (not competitively), and I've had steady progress while doing that, with the caveat I'm not at my peak - I wouldn't expect to progress with this diet if I was. But most people are so far off hitting limitations caused by food intake in their exercise it matters for quite few people.
People should keep up resistance exercise while on diets to reduce muscle loss.
It's not sustainable over long periods of time in that sooner or later you get to an inflection point where it impedes your progress, but it works when your body fat percentage is high, and for most people looking to lose weight it's simply not what they should be worrying much about.
That you accumulated fat with what you think was a net daily deficit sounds to me like it wasn't a net daily deficit. Intermittent fasting works, and limiting yourself to a single daily meal is not nearly long enough fasting periods to mess much with body composition. But it may have messed with your activity levels. It takes little change in e.g. dozing off on the couch rather than walking around to have an effect.
People are mostly more sedentary than they think and burn fewer calories than they think. When I was at my peak, exercising every day and lifting heavily 3 times a week, to maintain my weight I needed to keep my intake around 1800kcal because my life outside of that was not very active. I'm 185cm, and at the time I was about 93kg, with body fat around 15%.
Someone with a more active life outside of the gym might burn more. Many burn less. Kcal guidelines for adults have remained static for way too long with declining levels of physical activity, and people really should count calories for a few weeks and adjust their intake and figure out how little they actually burn...