The most probable pathological diagnosis is Diffuse Alveolar Damage in an exudative phase. The prognosis is directly related to the development of a organized fibrous phase. If this change is extense and the CTscan shows peripheral marked fibrosis then the disease probably will evolve to a fibrotic diffuse stage impossible to control.

In the very initial exudative stages, steroids could be helpful

Is it invariably fatal adverse effect ?

Do fully agree. In itself ILD as a side effect of cyclophosphamide is very rare. So, do exclude other causes that may be related to the development of ILD in this patient. Might it be related to the underlying disease for which you gave the cyclo; and, of course do exclude (opportunistic; PJP) infection.