Plans for 26 flats were refused in July last year, after councillors decided the ground floor of the proposed development would be to the “detriment of the vitality and viability” of Walton town centre.
The council also said the plans did not include sufficient contribution to the provision of affordable housing.
The site, which would be between three to five storeys, would also have parking and communal areas.
Applicants McCarthy and Stone Retirement Lifestyles Limited and Surrey Police Authority appealed the decision and found out they were successful on January 29.
In his report, planning inspector Jeremy Sargent said the ground floor elevation would be “no more harmful to the vitality and viability of either the secondary shopping centre or this part of the town centre than what is on the site now”.
Mr Sargent also concluded that the proposals do make appropriate provision for affordable housing and would not detract unreasonably from the living conditions of Ashley Park Crescent properties.
Councillor Andrew Kelly said: “It is a disappointing result for residents in Ashley Park Crescent and it’s always annoying when the views of the council are overruled by the Bristol based Planning Inspectorate.”