> I have tried David's code. But the output is required in a particular
> format since the output is the input for another application

In my reply I said

> You just need to fill in the replace template and templates for any
> elements that you need to process by somthing other than copy.

which in this case means adding a template for elem
something like this

  <xsl:template match="elem">
   <xsl:text>&#10;Elem Id, News Details&#10;</xsl:text> 
   <xsl:value-of select="@id"/>
   <xsl:text>, "</xsl:text>
   <xsl:apply-templates select="text/*"/>
   <xsl:text>"</xsl:text>
  </xsl:template>

and a template for the replace, something like this (which isnt the
replace you wanted but fits on one line so does as an example)

  <xsl:template  name="transformXMLString">
   <xsl:param name="StringToTransform" select="."/>
   <xsl:value-of select="translate($StringToTransform,'&#10;&quot;','@!')"/>
  </xsl:template>

Then it appears that you want the line breaks in all elements (eg
<pre>). changing, not just those below <p> so change
  <xsl:template match="p//text()">
to
  <xsl:template match="text()">
so thattemplate matches all text nodes.

Then the code that I posted before on the input that you just posted
produces the following which looks fairly close to what you want to me:

 saxon grumble.xml grumble.xsl

Elem Id, News Details
1234, "<p>    This is some data </p><p>     </p><p>    This is some special characters &lt;AHLN.AS&gt; </p><p>    A group of students have gone to picnic. </p><p>     </p><PRE>    ** This is another special tag@     @ @  </PRE>"