Allotment of Eq. sh to  directors of a Pvt.ltd co.

A proft making pvt.ltd.co. alloted euity shares to two directors at face value in f.y.2003-04.The euity share capital was raised to comply with the conditions of their bankers against their pending loan proposal.Their bankers speciically asked the co. to reduce unsecured deposit amount of these two directors only and bring equity share capital of equivalent amt.in order to avail new loan from bank.During the scrutiny proceedings of the co.the I.Tax officer wants this beneficial treatment of allotment of shares(at face value rather than book value) to directors to be taxed and accordingly send this matter to I.Tax ward officer where these two directors are assessed. Query:In what manner and undert which provisions of I.Tax/Gift Tax the above method alloment of equity shares to two directors be taxed? 2)Is the above pvt. ltd. co. liable for any contravention of incometax provisions?(note:Gift tax was exempted fro 1/10/98 to 1/09/2004)