related to this case found the below Sk's for best practices related to O365 configuration.
1.sk112354 : How to allow Office365 services in Application Control
2.sk110679 : Application Control support for Office 365.
3. And a general outline for Office 365 as per sk112249.
> Microsoft Office 365 supported applications are assigned an additional category called "Microsoft Services" for ease of use in the Application Control rule base. This category includes all of the Microsoft related content, including Office 365 applications, Microsoft account, Outlook.com etc.
Since HTTPS Inspection is not enabled on my gateway it is recommended to enable it as per sk112354 for proper usage of Office 365 services.