There isn't much that anyone can do about such decisions, Suzy. Schools have the authority to make them; we don't. Even though it doesn't always seem like it, the decisions are based on sincere beliefs about what will be best for any given child. Undoubtedly that is the case with your son.
When you first heard from his teacher that he would not do his work—hopefully long before you learned he was being held back—it would probably have been helpful to show his teacher samples of the work he did for you at home to demonstrate that he was indeed capable of doing it. If you have kept samples, it is probably not too late to do that even now.
Good for you for not wanting him to play cops and robbers. As most teachers are committed to having children learn how to handle feelings nonviolently and want to discourage anything that looks like play with guns, it is hard to believe that this game would be encouraged in your son's school. However, it may be that your son chose the sandbox because he did not know how to interact with the other children and simply preferred to withdraw and be alone.
Before recommending that a child be retained in grade school, many schools arrange for a developmental evaluation. Is the child behind in only one or two areas or across the board? Find out if that was done and insist on receiving a report. Try to determine whether he is resistant to attempts to redirect his behavior and help him acquire new skills. Does he have an attention problem? You indicate that he needs to be told to sit down and relax; it may be that he has an attention deficit disorder. My recommendation would be to try to suppress your dismay that he has been retained (which won't be easy to do) and find out more about the reasons for the school's decision. I think you need more information before trying to work out a solution.
Our parenting advice is given as suggestions only. We recommend you also consult your healthcare provider, and urge you to contact them immediately if your question is urgent or about a medical condition.