This is the second time that the statue, which was set up by shopkeepers in 2012, had been found vandalised.
It is suspected that the statue was damaged by some anti-social elements, police said.
A case has been registered by city police under section 295 (destroying, damaging or defiling a place of worship or sacred object with intent to insult religious sentiments of any class of persons) of IPC on a complaint of shopkeeper Shelender Chowdhary.
CCTV footage of the area showed three persons coming on a bike last night and damaging the statue.
Chandra Shekhar Azad was a firebrand revolutionary leader. He was instrumental in carrying out the Kakori train robbery in 1926 and assassination of John Poyantz Saunders in 1928 at Lahore to avenge the killing of Lala Lajpat Rai.