Thank you for your question.
Please note that the network overlay type does not affect Nginx/Load Balancer IP services.
The command you have shared works as expected, it is setting the needed annotation in the LB service to an internal IP.
Can you please share screenshots of the service being created. Mainly the output of kubectl describe svc ingress-nginx-controller -n ingress-basic
Please make sure to use an IP from the AKS subnet range if you want to set the private IP manually.
Thank you.