Hi Sonali,
The Portfolio hierarchy is usually set up for the entire workspace, by a workspace admin. I guess I'm unclear on what you mean by "you were able to create initiative->feature->story->task" then you're saying you are forced to use "capability->featureset". Sounds as if these experiences take place in different workspaces. Is that correct, is the first and second hierarchies in separate workspaces?
If so, as said, a hierarchy is usually set for an entire workspace and very rarely modified.
If you can let us know about my question, that hopefully will get us to understand your question better.
Thanks,
Sagi