It is very clear that Allah is not everywhere rather He is above the heavens and the earth, beyond the creation/not within the creation (Hadith in Muslim). So I wonder, where did the concept of Allah being everywhere come from? and when did it begin?
This is one of the main implications or principles of Wahdat Al-Wujud. Basically means every creature that the eye sees is Allah in essence. This concept is held by several so called soofee saints like Ibn Al-Faarid, Ibn ‘Arabi, Ibn ‘Sab’een, Al-‘Afeef At-Tilmisaani, Ibn Masheesh, An- Nabulusi and others. Many Soofis consider Ibn ‘Arabi as the symbol of the concept of Wahdat Al-Wujud.
Ibn 'Arabi considers the Soofee who knows of Allaah (‘Aarif billaah) as the one who “Sees Allaah in everything, rather he sees Him the essence of Everything," and that “He (Allaah) is the Essence of Existence” [Ibn ‘Arabi’s Fusoos al-Hikam [Beirut, Lebanon: Daar Al-Kitaab Al-‘Arabi, 1400 AH/1980 C.E.], p. 192.]
Historically, it started with Jahmiyyah and Mu'tazila who took their principles from Aristotle and Democritus.
Source: Sufism- Origin and Development
This is a question that has kept theologians very busy over the centuries. There are literally entire books about this one issue from opposing camps trying to prove their side.
Very briefly though, this issue arises because of a difference of opinion on epistemology: "How do we know what is true?" One camp (the kalamis and Ash'ari theologians) argue that revelation must be interpreted through reason, a specific branch of reasoning derived from Aristotelian logic, to be precise. To be extremely simplistic, one path their argument takes in this particular issue is as follows: Ascribing a direction to Allah implies that He occupies space, implying that He needs space to exist, implying that He is in need of something, whereas the Qur'an says He is Al-Ghani (free of need from anything), and therefore He cannot have a direction and He must be everywhere. There are a few other similar paths of reasoning but they all end up at the same place. Now the problem is to deal with relatively clearcut ahadith and athaar that contradict conclusions derived in this framework - they are either dismissed as abrogated, misunderstood, or in some cases, dismissed as simple-minded sayings from people who didn't understand how things really worked.
The position of the other camp is relatively simple - they accept the ahadith and athaar as they have reached us without ascribing a "how" to them (i.e. without taking them literally as we understand it). They take everything through the ayaat of affirmation (re. Allah's Attributes and ayaat in the Qur'an) and negation (e.g. the ayah that there is nothing like unto him) and go no further.
Source: 'Aqeedah class with Shaykh Yasir Qadhi, and other classes with other teachers
Neither Allah is everywhere in the sense that He has occupied the whole space or share position with everything, nor is He above the heavens and the rest, he is location-less, he is the Creator, the creator of space and time, so beyond all such notions. "Allah is everywhere" but is a correct statement, not in its apparent meaning but it needs a deep insight to be fully understood.
being everywhere implies both being aware of everything everywhere (how doesn't He know when He Himself has created everything instant by instant? --according to Imam Sadiq peace be upon him) and that everything is a sign of His being, His existence, His uniqueness, His mercy, His wisdom, and etc. . You read a book and partly understand its writer, the writer is not necessarily talking about himself clarifying how he is but you can know him better, and better if you read more of him. We see the universe God has created and we understand His attributes better and better, until we would say: