To nail down the issue we carried out following steps,
1) Provide necessary folder access right to Network Service account
2) Used Fiddler which showed HTTP 200 Ok status for all images and resources.
This made us think there should be some issue with IIS so we made a hit to Default website and got the same response where in the css and images were not loading. So it was now clear there is an issue with IIS installation and not Sitecore.
We moved to check which features have not been available on IIS and found that,
Turn windows features on or off => Internet Information Services => World Wide Web Services => Common HTTP Features => Static Content
Was not checked after enabling the feature IIS was up to the mark and my sitecore installation too.
Even the tool tip was giving some hint.