Hi Bala,
This might be a result of the --min_otu_size parameter, which defaults to 2 (meaning that OTUs that are only observed one time are filtered out). It also could result from some sequences being filtering if they are unalignable with PyNAST. You could test this by passing --min_otu_size 1, and then looking at the otu_table_mc1_w_tax.biom rather than the otu_table_mc1_w_tax_no_pynast_failures.biom file that is generated (the former doesn't have the unalignable sequences filtered). If you are losing reads due to these filters, they're probably reads that you don't want. If you're still finding that you're losing reads, let me know and we can try to figure out what else might be causing this.
Hope this helps!
Greg