Hello @Tushar Ramesh Poojary ,
Thanks for the question and using MS Q&A platform.
As we understand the ask here is that you are receiving an error while trying to connect to File system using the File System linked service. Please correct if I'm not accurate.
I tried to reproduce the error but no luck. My connection was successful when I used My machine login username and password.
I recall that I have seen such case in the past with similar error, but it got resolved once the user has reinstalled the latest version of Integration runtime and created a new SHIR. Could be something wrong while installing Integration runtime in your machine which is causing this issue.
I would recommend re-downloading the latest version of Integration runtime and try to create a new SHIR in your ADF and see if that helps to resolve your issue.
If this process didn't, I would recommend filing a support ticket for deeper investigation.
Do let us know how it goes.
Thank you