Create a delivery with return item

Is it possible for an outbound delivery to be created from a return item on a PO?  When we return an item, we add a line to the original PO and mark the return box.  Then we do a MIGO which generates a 161 movement and removes the item from inventory, however for the warehouse there is no way to pick and PGI.  No delivery is generated and it does not show in ME2O transaction for settlement. 

Is it  possible for this to generate a delivery or is this standard functionality?

Thank you.