Can a soldier be terminated during the APFT sit-up event for releasing his hands in the up position to adjust their shorts?

Yes, if the grader determined the Soldier was using the hands to rest in the up position.
Soldier should consider purchasing new ckothing items to prevent the climbing or learn to endure it for 2 minutes, and prepare for the retest.
YOU MAY NOT USE YOUR HANDS OR ANY OTHER MEANS TO PULL OR PUSH YOURSELF UP TO THE UP (REST) POSITION OR TO HOLD YOURSELF IN THE REST POSITION. IF YOU DO SO, YOUR PERFORMANCE IN THE EVENT WILL BE TERMINATED.

By adjusting his shorts he. Role form and it could be construed as adjusting for rest/comfort. Bottom line is, yes he can be terminated. Thank you for your service.

For starters, if you're still using 21-20 you are far out of date, but that may just be more old habits breaking through than anything else. However, using figure A-3 of 7-22, I would argue that it doesn't lead to a termination, as the directions clearly state "A repetition will not count if you ... fail to keep your fingers interlocked behind your head". This direction is repeated in pA-28. Providing the Soldier was able to meet the minimum requirement, and that the Soldier was in the authorized rest position, I'd just not count that rep. I'm not sure how that would play through legal if this was being used to build a case against them though.