I have just uploaded my first app to iTunes Connect and noticed that my list of supported devices is appearing as follows...
Device Requirements: Compatible with iPho
The way to indicate that an application should only run on iPhone is to specify your application as an iPhone type application, rather than universal. Open your project (in XCode), click on the project name at the top of the Project Navigator sidebar, select the target, go to the summary tab, and change "Devices" to iPhone.
When you submit it, it will only be run in emulator mode on iPads, thus getting around any issues.