Customer Returns Item, We Never Receive it, Files A-Z Claim that we LOSE?

So what do you guys think of this? We're in a bit of a pickle here. On 11/19/24 a customer orders something from us. We ship it that day and they receive it on 11/20/2024. On 11/21/2024 the customer requests a return stating that the item was different then they ordered. We never got the return. We actually forgot all about it till today (2/24/2025) when the customer filed an A-Z claim on us stating they returned the item and never got a refund. We look into this. Amazon provided the customer a return label via UPS on 11/21/2024 but it never got shipped. UPS doesn't show any activity until 1/21/2025 when it just shows that they (UPS) received the package. Nothing else since then. It's not been delivered and no other information is shown.

Amazon DENIED our A-Z rebutle, stating they are keeping their original decision to refund the customer. How is that possible? The package was never delivered back to us and the tracking even backs that up. We didn't even provide the return label, Amazon did.

How is it amazon can DENY this on our end and side with the customer. We've received no package at all and the tracking even backs that up. makes no sense at all!

What have you all done about this? We opened a support case but we all know how that pans out. I feel as if we're being taking advantage of as sellers here.