Yes this is because the item filter changes when an item is being upgraded compared to when it is being transformed. Upgrade interface allows anything to be put in, old items, new items, color kits, whatever. But transform is very specific, only allowing new items of the same item tier to be picked.
The 'kits' filter is empty, even if you have color kits, when looking at a max level item. Level 30 epic, level 40 legendary, et cetera.