It's wrong for Atalanta to choose where Lookman should go to. He has his freedom to decide where he will go or not. This shows that Atalanta is not treating Lookman in a proper way and conditioning him on his career. If I was Lookman, I wouldn't accept the extension of one more year contract, despite the promises of a better treatment.
If Atalanta doesn't want to sell him to an Italian club and no club abroad is interested in Lookman, and Lookman does not want to extend his contract, what will Atalanta do. I guess nothing.
It's a sad thing if Atalanta has a bad relationship with Lookman, their best player.
If that's the case, I support Lookman leaving Atalanta and joining a club in another league if Atalanta won't allow him to join another Serie A club.
I think many clubs from other leagues are interested in the player, but Atalanta's offer is too high, making other clubs reconsider their decision.
If Atalanta refuses to lower their offer, I agree with your opinion on not renewing his contract and becoming a free agent after it expires.