Battleback and terrain

Recently in a game of Epic Napoleonics the following situation occurred. A Prussian Infantry unit in a town hex attacked a French infantry unit in an adjacent clear terrain hex. The Prussian unit inflicts 2 casualties from 4 dice. The French unit having not retreated battles back.
According to my understanding of the rules the French unit rolls 1 die. 2 for the 2 stands remaining plus 1 for French Line in melee combat minus 2 for attacking into a town hex. My opponent playing the French side and his friend who was playing with me on the same side as Prussian disagreed. Insisting that as the Prussian unit had attacked first, it was now out in the clear. Despite reading the rules clearly to them on the melee calculation and battle back, they refused to agree with my understanding.
Who was right and who was wrong? In their defense their preconception was unshakable due to another Napoleonic hex game we have played.

According to my understanding of the rules the French unit rolls 1 die. 2 for the 2 stands remaining plus 1 for French Line in melee combat minus 2 for attacking into a town hex.

this is correct

that as the Prussian unit had attacked first, it was now out in the clear.

this is not

Thanks Mark. Hopefully when they see your reply they will reread the rules with an open mind this time.
GW