Step 1: Understand the proper preposition.
When describing something that covers a surface, the correct preposition to use is \textit{with}, not \textit{by}.
Step 2: Evaluate the alternatives.
"COVERED IN" is used for things that are inside or surrounded by something, not on top of it.
"COVERED WITH" is the correct choice as it means that something is placed over the surface.
"COVERED UPON" is incorrect as it is not used in this context.
Step 3: Conclusion.
The correct preposition is \textit{with}, so the sentence should be "The floor of the hall was covered with a carpet."