I finally resolved this now with QBO merchant services phone call and screenshare help.
Steps to do it:
Merchant Payment account > Processing Tools > Reverse a Trans > Search date > Select trans item checkbox > change Amount to partial refund amount > add comment > Submit button
Initially I had issues with these steps and after selecting a transaction, it became grey and no editing is possible. (Therefore no changing the amount to partial). But once I tried with live support, it became possible. The Amount and Comment fields became blue and editable.
Here's a screenshot of how it needs to look (blue editable fields). Support didn't tell me if they changed anything but now my account is enabled to edit/change amounts again as it used to do in past. I sent some partial refunds now.
