I was to approve all returns because customer satisfaction is more important than a little lost revenue

OK, I honestly see no problem with this.

Now see, about this point is where I would call him a fucking idiot

Why? Because someone higher up in management has made a decision you don't agree with regarding the finance of the business? Who the fuck are you? It's idiot employees like you who cost the business long term profits from long term customers because you want to feel that little bit of power.

Looking at Costco as an example, they've obviously done the maths and realised that having a reputation of "return anything" brings in more business than it costs them because most people won't abuse it and the security of "I can always return it" entices more sales.

It always annoys me when some basic manager or salesperson decides to go on a power trip and become Lord of his little realm against policy because he wants to be some kind of fucking department store Batman.

In this story OP acted perfectly. In your version you're just an entitled little shit.