The cash payment of salary will be disallowed as expenses u/s 40A(3) and income of the assessee will be calculated without providing for any deduction in respect of this cash expenses.  And these expenses will be reported under s.n. 21(d) of form 3CD being audit report for audit conducted u/s 44AB.
Kindly  note that:-
As per section 40A(3), No deducted of expenses shall be allowed for any expenditure in respect of which a payment or aggregate of payments made to a person in a day, otherwise than account payee cheque or account payee bank draft or use of electronic clearing system through a bank account, exceeds Rs 10000 . This limit was 20000 upto FY 2016-17.
There are some exception of this section 40A(3), exception are given under rule 6DD as given below:-
These circumstances and cases as provided under Rule 6DD are as follows:
(a) where the payment is made to—
(i) the Reserve Bank of India.
(ii) the State Bank of India or any subsidiary bank.
(iii) any co-operative bank or land mortgage bank:
(iv) any primary agricultural credit society or any primary credit society.
(v) the Life insurance Corporation of’ India 
(b) where the payment is made to the Government and, Under the rules framed by it, such payment is required to be made in legal tender;
(c) where the payment is made by—
(i) any letter of credit arrangements through a bank;
(ii) a mail or telegraphic transfer through a bank;
(iii) a book adjustment from any account in a bank to any other account in that or any other bank;
(iv) a bill of exchange made payable only to a bank;
(v) the use of electronic clearing system through a bank account
(vi) a credit card;
(vii) a debit card.
(d) where the payment is made by way of adjustment against the amount of any liability incurred by the payee for any goods supplied or services rendered by the assessee to such payee;
(e) where the payment is made for the purchase of-
(i) agricultural or forest produce; or.
(ii) the produce of animal husbandry (including livestock, meat, hides and skins) or dairy or poultry farming; or
(iii) fish or fish products; or
(iv) the products of horticulture or apiculture, to the cultivator, grower or producer of such articles produce or products;
(f) where the payment is made for the purchase of the products manufactured or processed without the aid of power in a cottage industry, to the producer of such products;
(g) where the payment is made in a village or town, which on the date of such payment is not served by any bank, to any person who ordinarily resides, or is carrying on any business, profession or vocation, in any such village or town;
(h) where any payment is made to an employee of the assessee or the heir of any such employee on or connection with the retirement retrenchment resignation, discharge or death of such employee, on account of gratuity, retrenchment compensation or similar terminal benefit and the aggregate of such sums payable to the employee or his heir does not exceed fifty Thousand rupees;   –
(i) where the payment is made by an assessee by way of salary to his employee after deducting the income-tax from salary in accordance with the provisions of section 192 of the Act, and when such employee-
(i) is temporarily posted for a continuous period of fifteen days or more in a place other than his normal place of duty or on a ship and
(ii) does not maintain any account in any bank at such place or ship;
(j) where the payment was required to be made on a day on which the banks were closed either on account of holiday or strike;
(k) where the payment is made by any person to his agent who is required to make payment in cash for goods or services on behalf of such person;
(l) where the payment is made by an authorised dealer or a money changer against purchase of foreign currency or travelers cheques in the normal course of his business.