A merchant fulfilled order customer is saying they want to return an electronic item (60 days after purchase) as it is not working

They said when they received it was working fine. I said I am happy to accept return with re-stocking fee. I tested it before sending and it was working. They are not accepting that.

What do I do as I do not want to risk a bad feedback?

Depends on value. Amazon will side with the customer regardless of return reason… You could try and steer them towards any manufacturer’s warranty