Spoke with the AHJ about knob and tube wiring. We are allowed to cut the wire 1 1/2" past the knob and wirenut and tape up the ends . . . He stated that that was not necessary to have a box.
I agree that your AHJ is correct.
Concealed K&T wiring is the only wiring method that is deliberately silent about the splices that aren't at switches and outlets.
The wiring method (concealed K&T) has most of its wire-to-wire splices occuring concealed in the wall (no box of any kind).
What you seem to be describing in your opening post is a dead end of a run that used to go further. The need for a deadend occurs when the scope of work that opens existing finished walls and ceilings is limited and the K&T branch wiring goes outside of the scope of the work.
Given the opportunity, on making a new deadend of an existing K&T conductor, I will tape the end, leaving the end long enough to wrap around the nearest Knob half a turn, and then twisting three or four time around itself, the taut conductor coming from beyond the scope of work.