I started cutting about 12 weeks ago, and I am actually up 5lbs in weight and down 3% in bodyfat than when I first started cutting. I was 215 @ 13% bodyfat(measured with caliper) and currently at 220 @ 10% body fat. So I say it possible based on experience. I actually added lean muscle mass to my frame while losing body fat during this cutting phase that I am on right now. I will stay on this for another 5 weeks, then I will start to bulk again.
I beleive some muscle may be lossed while cutting, but that is what everyone trys to prevent during those phases. I liked to mega dose Glutamine and BCAA's while cutting to help spare muscle loss.