Yes.
This may seem overpowered but there are several drawbacks to the spell:
The target's game statistics, including mental ability scores, are
replaced by the statistics of the chosen beast. It retains its
alignment and personality.
If you transform them into a T-Rex they become an unintelligent beast with an INT score of 2.
The creature is limited in the actions it can perform by the nature of
its new form, and it can't speak, cast spells, or take any other
action that requires hands or speech.
It can't communicate with you while in its new form or use its hands to activate any items, or otherwise perform any task that requires hands or speech.
The target's gear melds into the new form. The creature can't
activate, use, wield, or otherwise benefit from any of its equipment.
It's AC changes to 13 (T-Rex is easy to hit but not easy to kill) making it an easy target from long range. It can't benefit from any magic items it might have or any armor or shields.
Also, the spell requires concentration. This carries two more drawbacks.
If the caster takes damage he or she must make a concentration check to maintain concentration. If it fails, the target reverts form which could potentially put them in a very bad situation, surrounded by enemies and perhaps with low HP (maybe polymorph was cast on the fighter when he was almost out of his own HP).
The other drawback here is the opportunity cost of concentration. The caster can't concentrate on any other spells while he is concentrating on polymorph, which means any other spells available to the caster that require concentration aren't available for the duration. This is a spell list that includes things like hold person, fear, suggestion, haste, slow, wall of fire, web, invisibility, greater invisibility, and levitate, to name only a handful of the concentration spells available to a level 7 wizard.
Consider also that beyond class level 7, there would be even more concentration spells available which might come at a higher opportunity cost than polymorph.
Furthermore, there is also the opportunity cost of learning polymorph. When you first gain access to it at level 7 as a wizard or sorcerer, you have 1 (sorcerer, bard) or 2 (wizard) spell choices available. Druid gets it automatically as they know all their spells -- crazy, right?
As a bard or a sorcerer at that level, you have chosen to forgo all other level 4 spells so that you can transform something into a T-Rex for one hour once a day (maybe more if you spend sorcery points). As a wizard, you have a little more flexibility. In any case, the opportunity cost of choosing this spell over any other spell should come with an appropriate value -- in this case, the ability to temporarily transform someone into a powerful beast and the versatility of being able to transform them into any other less powerful beast.
However, I think you're overlooking the more powerful use of polymorph -- the potential of turning any opponent of yours into a harmless chicken or goat while you take care of the rest of the goons trying to steal your gold. Removing a single powerful enemy from combat is a much better use of your action than creating a powerful ally, when creating a T-Rex leaves the powerful enemy on the table to make attacks against you and your other party members.
This would not work.
Unfortunately, although everything leading up to it works, including dispelling true polymorph, once you have dispelled the polymorphed creature back into its original form, it is no longer a valid target for magic jar and thus the spell would end.
This tweet from Jeremy Crawford suggests as much:
In #DnD, the exceptional trumps the general. (No longer being a valid target trumps condition carryover.)
The same reasoning is used for this answer to a similar question about targets of spells changing from valid to invalid after being cast.
Best Answer
Your DM has chosen to vary from the RAW
You correctly point out that by the letter of the rules, his ruling does not match the rules text for the polymorph spell.
The spell as written uses the character's level as the basis for the CR of the beast that the PC is polymorphed into.
The bolded part is the key.
You are also correct in understanding that the DM's ruling is how the game is played at his table. Now that you know what the ruling is, you know how powerful polymorph is in your DM's world.
What do I do?
I'd suggest that you discuss with your DM why he feels that the bolded part (above) of the spell text should not apply to a PC being polymorphed. Find out if a "balance1" motive is the case, or if it's a simple misunderstanding.
I'd further recommend you do this away from the table (not during a game session) and work with your DM to discover the process he goes through to determine the CR level of the PC under a polymorph spell. There is a section in the DMG (pages 273-285) that addresses how to build a monster or NPC and assign a CR to it. The DM may feel that the spell should work a different way, or, he may be using an unofficial "conversion array" as you mentioned in a comment, or this may be a simple misunderstanding. The DMG and the game's developers point out that the rules serve the game at the table, and the that DM is Master of Rules(DMG p. 5) so for the moment play within his guidance until that is revised (if it is revised).
Beyond that discussion, and finding out if the DM agrees on the rules text and makes a change, what you can do is:
1 As an aside:
There is a school of thought that I have seen among various players and DMs in on-line discussions; they have fallen into the "polymorph is overpowered" school of thought. Those folks see a CR adjustment as a remedy to a perceived imbalance or loophole in the game. DM's do things like that for a wide variety of reasons with the intent of making the game play more smoothely/better at their table.