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sql 2012 upgrade issue from sql 2008 r2 sp2

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trying to upgrade an inplace upgrade from 2008 r2 sp2 to sql 2012. My existing instance has an instance name sql01. Reporting service is running fine on the box and I have all the permissions on the account I am executing the upgrade with. 

I am thinking this has mostly to do with instance name and upgrade script or executable does not understand instance names. Has someone seen this and can someone help me thru here? 

I cannot afford to go another installation and do migration etc..as those are completely worthless efforts for me. Can someone help? Thanks.

RS_ValidDatabaseVersion

Checks if the Report Server database version can be used by the Microsoft SQL Server 2012 Service Pack 1 Report Server.

Failed

The report server database is not a supported compatibility level or a connection cannot be established. Use Reporting Services Configuration Manager to verify the report server configuration and SQL Server management tools to verify the compatibility level.


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