Why are "returned" Shopee orders not restocked on Shopify?

Unfortunately you will have to manually restock Shopee returns yourself. The app will only handle restocks for Shopee cancellations.

The problem with returns on Shopee is that Shopee has a broken workflow for handling returns (see the Shopee Order status Flow below)

Note that with Shopee's flow, the shipped order and the returned orders both end up as COMPLETED! While cancelled orders always end up as CANCELLED. Because both returned and shipped orders end up as completed, the app has no way to know if the order was returned or shipped, so the app does not know whether to return the stock.

If possible try to cancel the order after it is returned, then the app will handle the Shopify order correctly.