I wouldn't recommend increasing overall diameter from 29.2 inch to 31/inch or 32 inch. It will affect your handling and performance. Ideally the best tyre swap would be to move from 235/70 R16 to 255/55 R16. Go for an all terrain pattern instead of mud terrain as the latter tends to heat up a lot of you use it on road / high speeds a lot. The issue with increasing the outer diameter, is not just the handling as mentioned, bit it may also hit / scrape the fender when you go off road.
in my opinion if you are opting for the offroading ,,,, then stick to the M/T tyre and if possible install a front diff lock as it already has the rear diff lock( in the new model) , then you will thoroughly enjoy the offroading ,,,,
If planning to upgrade tyres of your Mahindra Thar, i would recommend to select tyres depending upon your usage. if your major usage is daily drive/highway drive and weekend mild offroading i would suggest you go for AT tyres. the best one out in the market as of now are Maxxis Bravo AT 980 or Silverstone AT. if your usage is majorly offroad then go for MT tyres. MT tyres are not recommended for daily drive as they have a lot of road noise, less life on road also after some Kms down the line they start to create vibration as well(from personal experience). Moving on to the size of the tyres. the saffest is 31inch. you dont hit your fenders or bumpers (if ride height is adjusted properly) also less chances of breaking front axles.
The stock tyres on the Thar are 235/70 R16 size, with an outer diameter of about 29.2 inch. The safest upsize on that would be 255/55 R16 for the Sam I'm size. Won't upsizing to 31 inch create a speedometer error? That is it would show the Thar is travelling slower than it actually is? Zeus4x4