Question

Is energy transformation only occurring at only point 3?

Answer 1

No, energy transformation is occurring in every point of the motion.

In fact, the ball starts from point 1 with maximum kinetic energy and zero potential energy (taking the hand of the boy as reference level). The kinetic energy converts into gravitational potential energy as it goes higher: in point 2, part of the kinetic energy has converted into potential energy (because the velocity has decreased, while the height has increased), and then when the ball reaches point 3 all the kinetic energy has converted into potential energy (because now the velocity is zero, while the height is maximum). As the ball descends (point 4), the velocity starts to increase again, therefore the kinetic energy increases and the potential energy decreases (because the height is deacreasing now).
Summarizing, energy transformation is occuring in every point of the motion.