reading lines of file

One way of doing this is using a map.
You can create a custom Xslt based on a Schematron pattern, that will iterate thru the records creating an output for each error discovered.

Here is a brief example.
The test conditon can be virtually anything including script

[code:1:33c95ab219]
<xsl:stylesheet xmlns:xsl=\"http://www.w3.org/1999/XSL/Transform\"
xmlns:msxsl=\"urn:schemas-microsoft-com:xslt\"
xmlns:var=\"http://schemas.microsoft.com/BizTalk/2003/var\"
exclude-result-prefixes=\"msxsl var s0 userCSharp\"
version=\"1.0\" xmlns:ns0=\"http://Supplier.Invoice.InvoiceValidationReport\"
xmlns:s0=\"urn:schemas-custom-com:Invoice\"
xmlns:userCSharp=\"http://schemas.microsoft.com/BizTalk/2003/userCSharp\">
<xsl:output omit-xml-declaration=\"yes\" version=\"1.0\" method=\"xml\" />
<xsl:template match=\"/\">
<xsl:apply-templates select=\"/s0:document\" />
</xsl:template>
<xsl:template match=\"/s0:invoice\">
<ns0:InvoiceValidationReport>
<xsl:for-each select=\"line\">
<xsl:call-template name=\"Validate\"/>
</xsl:for-each>
<xsl:variable name=\"var:errors\" select=\"userCSharp:GetErrorCount()\"/>
<errorCount><xsl:value-of select=\"$var:errors\"/></errorCount>
</ns0:InvoiceValidationReport>
</xsl:template>
<xsl:template name=\"Validate\">
<xsl:choose>
<xsl:when test=\"s0:lineNumber and s0:lineNumber/text()\" />
<xsl:otherwise>
<error>
<xpath>/invoice/invoiceNumber</xpath>
<description>Missing Invoice Number</description>
</error>
<xsl:variable name=\"var:e1\" select=\"userCSharp:IncrementErrorCount()\"/>
</xsl:otherwise>
</xsl:choose>
</xsl:template>
<msxsl:script language=\"C#\" implements-prefix=\"userCSharp\"><![CDATA[
public int errorCount = 0;
public int IncrementErrorCount()
{
return ++errorCount;
}
public int GetErrorCount()
{
return errorCount;
}]]></msxsl:script>
</xsl:stylesheet>
[/code:1:33c95ab219]

You can use a Decide shape after the map to check the errorCount, if greater than zero take action with the map output, otherwise continue with the original document.