Does CSS code works for the image that is without proper path? I mean that doesn't load proper 'cause of improper link.

Suppose there is a 728 x 90 banner (Image banner hosted from your own server) with CSS padding of 5px 5px 5px 5px. If the banner doesn't load properly because of improper link or any other reason. Would the CSS padding still work?

Yes the padding would still be on the tag. In the event that an image doesn't load, the browser loads a default image (The image you see when you don't see an image).

Yes!absolutely yes,it will not affect any link at all cause they are different.