Sec 40 a (3)

According to section 40A(3), any expenditure in respect of which aggregate payments made to a person in a day is in excess of 20,000 Rs/- otherwise than by account payee cheque or demand draft, the whole of such expenditure paid for would be disallowed in the return of income filed.

In the first case, if the creditor is a "trade creditor", which I'm assuming he is, the expenditure would be disallowed. If he is not a trade creditor, the income/expenditure from such a transaction does not form a part of the computation of income, hence the question of disallowance does not arise. For example, if you repaid a loan in cash in excess of 20,000Rs/-, section 40A(3) would not be attracted, but section 269SS and 269T would be attracted. That is another story.

Bear in mind, the provision only attracts expenditure in the nature of "revenue expenditure". Section 40A(3) has no bearing on capital expenditure. Therefore, in the second case, you could pay any sum of money to acquire a capital asset, in cash, and there would be no question of disallowance, because in the first place, the capital expenditure was NEVER allowed in the computation of income, under section 28. And Section 32 does not lay down any specific method of paying for acquiring capital assets. Therefore, be it cash or otherwise, depreciation will be allowed in accordance to section 32 of the Income Tax Act, 1961.

Repayment of loans or payment towards PURCHASE OF CAPITAL ASSETS does not attract provisions of section 40A(3) as has been elaborated in the Circular Number 34 dated 5th March 1970.