A lot of dieters DO exhibit muscle waisting....or more specifically an acute reduction in fat free mass...mostly water and glycogen. Also, the degree of this muscle waisting it going to depend on the length of diet, severity of calorie restriction and how low your body fat drops too. Most natural bodybuilders will exhibit some muscle waisting as they get down to extremely low levels of body fat.
Can you increase muscle mass AND reduce body fat at the same time? Yes. Is it common? Depends on the population you're looking at. If you're looking at typical study subjects, the untrained, the YES it is very common. If you are looking at trained subjects then NO it is not common at all.
Alan