Dear Rutvik,
Good day! Thank you for your detailed information. We are here to assist you.
It seems you are encountering the error during the teamsApp/extendToM365 step due to a violation of Responsible AI guidelines. You may need to review the guidelines to ensure your content complies, checking for any sensitive or inappropriate material. I found below discussions which may help you Declarative Copilot Content Violates, Teamsapp/extendToM365
I understand how important it is to get this issue resolved. However, since our community is mainly focus on the SharePoint online general and build-in features issues and this specific query might require more specialized assistance, I recommend visiting the Microsoft Copilot - Microsoft Q&A. The experts and other users there have a wealth of knowledge and should be able to provide the detailed help you need. The Microsoft Copilot - Microsoft Q&A is a great resource for specialized assistance.
Please understand that our initial reply may not always immediately resolve the issue. However, with help of dedicated team you can find the solution.
Have a great day and take care! 😊
Sincerely,
Naren | Microsoft Community Moderator