Hi,
The short answer is to upgrade the Hyper Server to Windows 2012 R2 - as saved state backups are a thing of the past when running Windows 2012 R2.
http://blogs.msdn.com/b/virtual_pc_guy/archive/2015/02/16/hyper-v-backup-doesn-t-interrupt-running-virtual-machines-anymore.aspx
Q1- Does this means inside VM there should not be any dynamic disks or its creation of vhd type (fixed\dynamic) please confirm.
A1- All the disks inside the VM should show as "Basic" disks in windows disk management.
Here are the general conditions that make a VM go into a saved state during backup.
Protecting Hyper-V machines
http://technet.microsoft.com/en-us/library/hh757866.aspx
Conditions when DPM fails to back up Hyper-V virtual machines in an online state
By default, System Center 2012 Data Protection Manager (DPM) performs a backup of a Hyper-V Virtual Machine (VM) in an online state. However, DPM cannot back up a Hyper-V VM in an online state, if one or more of the following conditions are true:
Backup (Volume Snapshot) Integration Service is disabled or not installed.
The virtual machine has one or more dynamic disks.
The virtual machine has one or more non-NTFS based volumes.
The virtual machine Cluster Resource Group in a cluster setup is offline.
The virtual machine is not in a running state.
A ShadowStorage assignment of a volume inside the virtual machine is explicitly set to a different volume other than itself.
An App-V drive is installed on the virtual machine that creates a non-NTFS volume.
These conditions are set by the Hyper-V writer. In such a case, the VM is put in a saved state before a snapshot of host volumes are taken (except when the VM is turned off) for a backup. The Hyper-V writer adds the VM in the following format:
For offline backups: Backup Using Saved State\<VMName>
For online backups: Backup Using Child Partition Snapshot\<VMName>
Additional reason is if there is less than 300MB free space on a volume in the guest.