Correct option is C
The correct indirect speech is (c) He said that I had been making excuses.
1. The Rule of Tense Change (Backshifting)
When changing from direct to indirect speech, if the reporting verb is in the past tense ("He said"), the tense of the speech inside the quotation marks must shift backward in time.
Direct Speech: Past Continuous ("were making")
Indirect Speech: Past Perfect Continuous ("had been making")
Both options B and C apply this tense rule correctly. Options A and D fail this rule.
2. The Rule of Pronoun Change (The Deciding Factor)
This is where Option B fails and Option C wins. In direct speech, the second-person pronoun "You" always changes according to the object of the reporting verb (the person being spoken to).
The Grammar Dilemma: The sentence simply says, "He said..." without explicitly mentioning who he was talking to (e.g., He said to me, He said to them).
In standard English grammar and competitive exams, when the listener is omitted, we apply the following universal protocols:
Assumption of First Person: If someone says "You were making excuses" to an open room, it is standard convention to report it as if they were addressing me (the reader/reporter). Therefore, "You" changes to "I".
The "No Change" Fallacy: Leaving "You" as "You" (as in Option B) is only grammatically correct if the reporter is talking back to the exact same listener about themselves, which is rarely the preferred template in standard transformation exercises.