I Know It's not all Muscle, but..

tigersword

I think it is possible to gain muscle in a deficit, but it is very rare to gain lean body mass while in a deficit. The two exceptions I've seen of this are in the extremely obese and as a result of newbie gains (when you first start heavy lifting). You can also have regional muscle gain in a deficit. So, although your lean body mass may be the same or reduced overall, you can have greater muscle in certain areas -- such as when a previously untrained individual starts lifting heavy and will see increased muscle in certain areas (oftentimes the upper body or back).

say what now?

are you maybe thinking of strength gains?

Nope, not just strength gains. I don't have the studies handy at the moment, but Lyle talks about it here in his "overfat" beginners or those returning to strength training after a lay-off. I'll see if I can find the studies on regional increases.

http://www.bodyrecomposition.com/fat-loss/adding-muscle-while-losing-fat-qa.html

Here's one that shows increases in lean body weight in the case of obese, untrained women who were dieting and lifting heavy. Not much, but it's there. http://ajcn.nutrition.org/content/47/1/19.full.pdf

I also know I've seen a study where the women just worked their quads/hamstrings and they found region increases there but overall reduction in lean body mass while in a caloric deficit.

I can't find the text of the original study on any free cites, but here's a summary from an atkins site (titled Effect of a Hypocaloric Diet, Increased Protein Intake and Resistance Training on Lean Mass Gains and Fat Mass Loss in Overweight Police Officers): http://www.atkins.com/Science/Articles---Library/Activity---Exercise.aspx

While noob gains are a thing, they are measured in ounces, and only last a matter of a few weeks.

Also, lean mass gains are not the same thing as muscle gain. Most lean mass gains are due to water and glycogen storage, not muscle tissue. Growing actual muscle tissue is very, very, hard.