In Googles terms of service it says that ads are not to be placed near pictures ,has anyone been flagged or banned as a result of this ?

probably.

If flagged you could find somebody but its very rare that banned exact reason is known

Thank you for responding but I am not sure what you mean , please elaborate.

Nobody gets told why their account was terminated.

regarding this, how near is near?

near is too near when the images look like they are part of the advert.
near is too near when the images are clickable and you could click the ads instead.

plus there are probably several other possibles that you'll never know about.

Just like what is stated on their Policy:

May not place misleading labels above Google ad units - for instance, ads may be labeled "Sponsored Links" but not "Favorite Sites"

Meaning to say, anything that looks like misleading label is prohibited.

What if the adsense unit has pictures from an ad from another company, such as chitika or shopzilla, just above or below it? Is that a problem?

why not ask the people who would really know?

https://www.google.com/adsense/support/bin/request.py

because we are only guessing at what the Adsense team would deem an issue.