Hello Uday Kiran Reddy (ureddy)
Firstly, apologies for the delay in responding here.
In order to achieve mTLS , the ingress gateway and the backend application must both present and verify certificates. Application Gateway does not have support for backend TLS encryption (often called re-encrypt).
I checked with internal team on this, support for using the Istio addon with Application Gateway for Containers is in product team roadmap. There is no ETA on this yet.
Hope this helps.