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Rehan01, there is no confusion.
As it is clear that you are still legal while your application is pending (even your leave is expired). It is also clear that once you appeal within given time again you staying in this country legally.
You are not overstaying if you withdraw your appeal and send a fresh application as long as you have not overstayed more than 28 days.
I am so sure about this situation as i have been gone through this in the past.
I am trying to clear your situation.
Thx for ur comments and advice but that's wht guidance says
The applicant completes 10 years continuous lawful residence while awaiting a decision of an appeal . A person may complete 10 years continuous lawful residence whilst they are awaiting the outcome of an appeal and submit an application on this basis. Under sections 3C and 3D, it is not possible to submit a new application while an appeal is outstanding. However, the applicant can submit further grounds to be considered at appeal.
If the applicant has an outstanding appeal against a decision to refuse leave to remain or indefinite leave to remain, and submits an application for long residence, you must void the case and refund the fee.
Source :
http://www.ukba.homeoffice.gov.uk/sitec ... iew=Binary
Regarding being legal in country while application or appeal is pending there is no issue but withdrawing appeal and re submitting there is a prob. So best to submit LR Application and wait for acknowledgement than withdraw appeal.
Regards