Another option is to try to create a folder in project application and add images to it and give image path as both are in the same folder it should be an issue.
It would be a security vulnerability if the client could request local file system files and then useJavaScript to figure out what's in them.
You can still do a workaround to show local file images.
Open IIS
Add a Virtual Directory under Default Web Site
the virtual path will be what you want to browse to in the browser. So if you choose "serverName/images you will be able to browse to it by going to http://serverName/images
Then add the physical path on the C: drive
Add the appropriate permissions to the folder on the C: drive for "NETWORK SERVICE" and "Authenticated Users" or "IIS AppPool\DefaultAppPool"
Refresh Default Web Site
And you're done. You can now browse to any image in that folder by navigating to http://yourServerName/whateverYourFolderNameIs/yourImage.jpg and use that URL in your img src.
