Catcher's Interference on Suicide Squeeze

With one out and a runner at third base (R3), the suicide squeeze is on. The pitcher sees R3 stealing, so the pitcher legally steps backwards off the pitching rubber and throws home.
 
The catcher moves out of his catcher's position and onto home plate.  While attempting to bunt the pitch, the batter contacts part of the catcher's mitt but is still able to bunt a fair ball down the first base line. The batter is retired at first base while R3 scores.
 
The offensive coach reminds the umpire that with catcher's interference, the coach gets the choice of the play (B1 out and R3 scores) or the penalty (B1 awarded first base and since R3 was stealing, R3 is awarded home).
 
The defense coach insists that the batter interfered and thinks both the batter and R3 should be called out.
 
What do the umpires do now?
 
Call
With less than two outs, if the batter interferes with the catcher and a runner is advancing to home, then the runner is out and the batter remains at bat (NF 7-3-5).
 
Since the pitcher properly disengaged from the pitching rubber, this was not a pitch -- it was a throw home in an attempt to retire R3. The batter hit the throw, so the ball is immediately dead and R3 is out because of the batter's interference (Casebook 7.3.5G).