After all I have managed to make it work.
The steps I took were
1. Upload the image file on Onedrive(Personal)
2. Use Get file content using path from Onedrive(Personal) list of commands, before the Send Email (V3)
3. In the Email body I typed
<img src="data:@{outputs('Get_file_content_using_path')?['body']['$content-type']};base64,@{outputs('Get_file_content_using_path')?['body']['$content']}" />
E voila!
So far tested with Outlook and Gmail and it works fine.
Thanks