diff --git a/erpnext/controllers/selling_controller.py b/erpnext/controllers/selling_controller.py
index e8bae8c..4489d60 100644
--- a/erpnext/controllers/selling_controller.py
+++ b/erpnext/controllers/selling_controller.py
@@ -12,7 +12,7 @@
 from erpnext.controllers.stock_controller import StockController
 from erpnext.stock.doctype.item.item import set_item_default
 from erpnext.stock.get_item_details import get_bin_details, get_conversion_factor
-from erpnext.stock.utils import get_incoming_rate
+from erpnext.stock.utils import get_incoming_rate, get_valuation_method
 
 
 class SellingController(StockController):
@@ -432,11 +432,13 @@
 
 		items = self.get("items") + (self.get("packed_items") or [])
 		for d in items:
-			if not self.get("return_against"):
+			if not self.get("return_against") or (
+				get_valuation_method(d.item_code) == "Moving Average" and self.get("is_return")
+			):
 				# Get incoming rate based on original item cost based on valuation method
 				qty = flt(d.get("stock_qty") or d.get("actual_qty"))
 
-				if not (self.get("is_return") and d.incoming_rate):
+				if not d.incoming_rate:
 					d.incoming_rate = get_incoming_rate(
 						{
 							"item_code": d.item_code,
diff --git a/erpnext/stock/doctype/delivery_note/test_delivery_note.py b/erpnext/stock/doctype/delivery_note/test_delivery_note.py
index 3a58122..da8ee02 100644
--- a/erpnext/stock/doctype/delivery_note/test_delivery_note.py
+++ b/erpnext/stock/doctype/delivery_note/test_delivery_note.py
@@ -1375,6 +1375,56 @@
 		dn.reload()
 		self.assertEqual(frappe.db.get_value("Serial No", serial_no, "status"), "Delivered")
 
+	def test_sales_return_valuation_for_moving_average(self):
+		item_code = make_item(
+			"_Test Item Sales Return with MA", {"is_stock_item": 1, "valuation_method": "Moving Average"}
+		).name
+
+		make_stock_entry(
+			item_code=item_code,
+			target="_Test Warehouse - _TC",
+			qty=5,
+			basic_rate=100.0,
+			posting_date=add_days(nowdate(), -5),
+		)
+		dn = create_delivery_note(
+			item_code=item_code, qty=5, rate=500, posting_date=add_days(nowdate(), -4)
+		)
+		self.assertEqual(dn.items[0].incoming_rate, 100.0)
+
+		make_stock_entry(
+			item_code=item_code,
+			target="_Test Warehouse - _TC",
+			qty=5,
+			basic_rate=200.0,
+			posting_date=add_days(nowdate(), -3),
+		)
+		make_stock_entry(
+			item_code=item_code,
+			target="_Test Warehouse - _TC",
+			qty=5,
+			basic_rate=300.0,
+			posting_date=add_days(nowdate(), -2),
+		)
+
+		dn1 = create_delivery_note(
+			is_return=1,
+			item_code=item_code,
+			return_against=dn.name,
+			qty=-5,
+			rate=500,
+			company=dn.company,
+			expense_account="Cost of Goods Sold - _TC",
+			cost_center="Main - _TC",
+			do_not_submit=1,
+			posting_date=add_days(nowdate(), -1),
+		)
+
+		# (300 * 5) + (200 * 5) = 2500
+		# 2500 / 10 = 250
+
+		self.assertAlmostEqual(dn1.items[0].incoming_rate, 250.0)
+
 
 def create_delivery_note(**args):
 	dn = frappe.new_doc("Delivery Note")