During a recent engagement of upgrade Server 2012 OS to latest version server 2012 R2 I came across with above error preventing me from carrying out the upgrade.
This has prevented me carrying out the required upgrade. Errors has been recorded in the the Windows Compatibility Report.htm
Further search revealed Microsoft Hyper-V S3 Cap is an old S3 Trio 765 emulated video device and the driver isn’t included anymore so you’ll get this particular warning. This will never give you an issues. So next step was to go into the Device Manager Expand PCI bus and locate Microsoft Hyper-v S3 Cap and remove it (Sorry folks couldn’t get this screenshot from the live system during that time)
Once removed you can go ahead and try running the in-place upgrade and continue the setup.