Understood , in my experience when there is a discussion or disagreement about the code with AHJ, they may concede but not without having some sort of shift of liability, such as having the EOR says it’s ok in a letter (even though the drawings don’t change and it was designed in line with contractors interpretation ) just not a great situation, I think if something happens with the water heater now, even if it’s not related to the issue, that email chain or letter about what the AHJ flagged and the back and forth will be tough to deal with, regardless of whose right and wrong.