Ah, if only it were that simple! Unfortunately, the idea that you can turn fat into muscle is a myth.
In reality, the processes of building muscle and losing fat are different and opposite. To build muscle, your body needs a caloric surplus, while to lose fat, you need to be in a caloric deficit. So, no, muscles don't replace fat.
However, they can help you burn fat more efficiently, and the more developed your muscles are, the more they need to draw on your resources to function.