To eliminate the bars, you need to right click on the clip > Attributes > Set Aspect Ratio to make it 16:9. It should look like this in a 16:9 project (if I've read your post properly) I'm confused by " the preview screen shows no black bar on left and right side of the screen but black bars just on up and down of the screen" Do I understand you correctly that your input video clip is 1012x768? That isn't 16:9 or 4:3.
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