Can there be reversal of depreciation expense during the year? If yes, give an example.

You need to be more specific with your question. What method are you using and what base? How you classify your depreciation internally might not be the same as what is required by lets say, the IRS. 

I have no idea how a senior auditor is saying you can adjust due to a significant decline in the FMV??? Asset values are based on historical cost. 

Extraordinary losses are another thing. 

Reversal of depreciation expense during year may be possible in following cases:

1 If we have booked depreciation expense at start of year according to assets cost. But during year it's value declined significantly, for example building, car etc. Then you shall have to recalculate expense based on its' current value and change expense booked already during the similar period.

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