For what it's worth, the below solution is what worked for me.
My Setup:
First of all my project setup was different. I had a MyProject.Data and MyProject, and I was trying to scaffold "API Controller with actions, using Entity Framework" on to my API folder in MyProject, and I was getting the error in question. I was using .net 3.1.
Solution:
I had to downgrade all the below nuget packages installed on MyProject.Data project
Before downgrade:
<PackageReference Include="Microsoft.EntityFrameworkCore" Version="5.0.2" />
<PackageReference Include="Microsoft.EntityFrameworkCore.Design" Version="5.0.2">
<PackageReference Include="Microsoft.EntityFrameworkCore.SqlServer" Version="5.0.2" />
<PackageReference Include="Microsoft.EntityFrameworkCore.Tools" Version="5.0.2">
After downgrade:
<PackageReference Include="Microsoft.EntityFrameworkCore" Version="3.1.11" />
<PackageReference Include="Microsoft.EntityFrameworkCore.Design" Version="3.1.11">
<PackageReference Include="Microsoft.EntityFrameworkCore.SqlServer" Version="3.1.11" />
<PackageReference Include="Microsoft.EntityFrameworkCore.Tools" Version="3.1.11">
Then tried again to use scaffolding and it just worked!!
After scaffolding MyProject had the below nuget package versions installed:
<PackageReference Include="Microsoft.EntityFrameworkCore.Sqlite" Version="3.1.11" />
<PackageReference Include="Microsoft.EntityFrameworkCore.SqlServer" Version="3.1.11" />
<PackageReference Include="Microsoft.EntityFrameworkCore.Tools" Version="3.1.11"/>
<PackageReference Include="Microsoft.VisualStudio.Web.CodeGeneration.Design" Version="3.1.4" />
The main problem was that no errors were displayed other than the one that shows up on the dialog box or does not even point us to any logs or nor any helpful documentation are available. If anyone finds one please attach it to this answer. It was very frustrating and this almost ate away half-day of my weekend :(
Hope it helps someone. Happy coding!!