CDT3 MK3 Question

The Jay's Audio CDT3 Mk3 transport has a toggle switch for upsampling Redbook Cd's to 176.4. Played into my Holo May KTE DAC in PLL mode this sounds better to me than Redbook. The screen on the Holo May shows "176.4" when the transport is activated with the toggle. The Holo May is set to NOS (non-oversampling) so that theoretically there is no burden of playing two different converters simultaneously or one converter needlessly.

Early in my journey I was unknowingly doing that, and there would be chirps after awhile which I eventually assumed were due to overstraining conversion processes within the DAC. I am assuming that the transport is doing the conversion and then handing that conversion off to the DAC which then doesn't have anything else to do but play the file as it was handed to it.

After this error was figured out, a 44.1 K Redbook CD (.wav files)  played with the 176.4 toggle in the "on" position sounds superior to CD's played with the toggle off (44.1k.)

My question is this: does the CDT3 MK3 upsampling process in this set-up do more than just "pad" the original file with extra unneeded zeros? I read somewhere that this seemingly redundant process can lower noise floor a tad but nothing much else. However, according to my ears the conversion improves some obvious parameters - improved dynamics that aren't overly "sharp," better separation of instruments, more accurate musical tone, more nuance and expression in voices, an overall smoother and more relaxed performance.

Am I missing a certain logic here?