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Actually no it's not. Diminishing returns will start to kick in at some point.
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My understanding of diminishing returns on Avoidance is that the more rating you have the more rating you need to reach the next percentage increase.
I am not quite sure what you mean by Diminishing returns kicking in at some point of the fight? Whatever your avoidance level is, it will remain that throughout the fight, buffs, debuffs and CD's not withstanding.
ie whatever your character sheet says your avoidance chance is.
You are right that Bone Shield could be used to mitigate 20% of our dmg taken for x amount of time. The thing you are not considering is that the value of x is increased in that time by the amount of avoided physical hits. The higher your avoidance is, the longer it will take (on average) for those mobs to remove the charges of Bone shield. Once again, Mastery is not helping here while you are not DS'ing. It is far better to avoid those hits entirely while you grab the adds, than it is to take those hits at a 20% reduction.
The use of a % reduction in dmg taken CD, cannot be used to justify gemming one way or the other. As the CD effects all survival stats equally.
Bone shield is infact a bad example as its duration is not fixed, and is extended by the amount of fully absorbed or mitigated hits. Lending to the argument that avoidance is a stronger stat for bone shield than mastery in this situation.
The fact of the matter is still that during that time, avoidance it working for you, and mastery is not, because you are not pressing the DS button.