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when a source is connected to line/mic on channel 5 or 6 and the channel's input selector is set to 1 or 3 ( chan. 5) or 2 or 4 ( chan 6) the source can be heard on the L/R bus even when all channel inputs are turned down and the master is up. Is this by design? If so what purpose dose it serve?
Yes it is by design.

The purpose is to keep manufacturing costs down.

What you are hearing is unwanted bleedthrough. Does that still happen with pre-recorded tracks under similar conditions?

That is why I sent my 424mkII to the service center for 8 weeks and because he could not fix it, TASCAM got it. They could not fix but recognized that it was a problem so the nice man at TASCAM promised me an upgrade to the brand new 424mkIII. A few days later, however he found out that the 424mkIII had the same problem and that it was part of the design of the unit. What is meant by that is that to eliminate the problem, higher quality components would be needed and that would make the price of the unit skyrocket.

The bleedthrough on my 424mkIII is very small however and does not pose me any real problems.