Why did Zara pull this item from shelves? Was it really that offensive?

The specific outfit isn't named in the question, so it's hard to say what we're talking about - Zara has design scandals pop up periodically, and the company responds by pulling the product. Usually this happens when the design strikes people as culturally insensitive or offensive to some group, and then there's a wave of criticism on social media. Corporations would rather yank the item quickly than explain their decision - it's easier for their image to just make the problem disappear. As for how it passes checks in the first place - often designers don't see what people on the outside see, or the company just isn't careful enough about details during the development stage.