Dear Sasi,
in my Data Services server, in the location D:\Program Files (x86)\SAP BusinessObjects\SAP BusinessObjects Enterprise XI 4.0\java\lib I have created a file jaxp.properties
this file contains jdk.xml.entityExpansionLimit = 0
Unfortunately, still suffered the issue 
Now Im reading in Java forums: << According to java documentation, setting the value for "jdk.xml.entityExpansionLimit" property to "0" acts as no limit. You should use a negative value to disable the entity expansion.>>
I have set it now as jdk.xml.entityExpansionLimit = -1
Let's see what happens 