Palace's under-18 side fell to a 3-1 defeat to Tata Football Academy in their second group game of the IFA U19 Shield.
After the Eagles dispatched Salgocar 4-1 in their opening game the top two in Group A faced off, with Tata already winning their previous three games.
However it was Palace who took the lead after just six minutes when Victor Fundi put them ahead but Subham Ghosh equalised from the penalty spot on 23 minutes.
It looked like things would be level at the break but in first-half stoppage time Firoz Khan added a second to put Tata ahead.
Nine minutes into the second half Ghosh added his second to put the Jamshedpur-based side further in front, but Palace couldn't find a way back into the game.
The win puts Tata into the quarter-finals as group winners by winning all four of their matches, whereas now Palace have to face winless United SC on Saturday before rounding off the group stage against East Bengal on Monday.