chuckle This is just the way some men relate to women. I doubt that he was hitting on you. A woman doesn't even have to be good looking to get this line. The way to stop it is to either completely ignore, i.e not respond at all, or to laugh and go along with it. I worked with men and saw this happen.
When you answer with reasons why not you're actually encouraging him to continue by giving him the chance to counter with reasons why. I know that wasn't your intent. It's just the way these men think. His comment about making you smile is the clue to how this was just flirting to him.
I understand being uncomfortable to be in the room in the future but don't make yourself scarce. He's apt to see that as a challenge. The fact that it bothered you makes it seem that on some level you're interested. Otherwise why would you even pay attention to it?
When you see him next time and he starts in tell him that you don't appreciate that sort of banter if you don't want to play that game. Be assertive. Don't go along with it. What would be best, probably, is to just ignore it. Give him nothing to respond to. Be friendly. Act as if nothing has happened.
If the conversation starts out as "you're beautiful," then respond with a thank you. Don't show that it embarrasses you. You were on the defensive immediately which he sees as a challenge. You introduced the idea that his comment was more than a compliment. Indicates where your mind went which encourages him to go down that road.
This behavior is not politically correct and if you'd like to get him in trouble, then, yes, do report him to your supervisor or his. I've always had success handling this sort of situation on my own. When I didn't want to banter I just told them to stop. Mostly, with the men I worked with I just went along with it, feeling flattered that they were paying attention to me. They didn't tease all the female officers.