In-place masking for flat files? That can't possibly work. You can just create a masked copy of your original file and afterwards rename the masked copy to the original name, but performing in-place with flat files is technically (almost) impossible.
Inplace masking is not supported for flat file sources and for your queries on the importing flat file sources to TDM please follow the below steps.
1) Import the flat file to PWC designer client.
2) Then import to TDM via Import from PWC Repository option > Select the folder where you imported the flat file in Designer > select the file and then import.