Imploding water heater?

[MACPLUMB 777]

I know exactly what happened to your water heater i have seen that many times before ! !

You have a excessive pressure bulge, caused by not having thermal expansion tank inSTALLED per mfg's spec's
you need the tank between the shut off ball valve and the water heater, when you turned the water heater off it caused excess
pressure to build up and invert the tank ! ! !
YOU HAVE A CHECK VALVE ON THE COLD WATER INLET, YOU MUST HAVE THERMAL EXPANSION TANK BETWEEN ANY VALVES AND THE WATER HEATER

If you look in the fire box you will see the tank setting down on
top of the burner,

this will cause carbon monoxide because the burner cannot burn correctly,
so yes shut heater down now ! !
And get replaced a. S. A. P. Be sure thermal expansion tank is moved to after the shut off valve or you could have the same problem again
e-mail me if you have any more questions