Hi Nidhi Priya,
Welcome to the Microsoft Q&A Platform! Thank you for asking your question here.
Based on your question description we understand you want to create a VM from iso file.
You cannot create an Azure VM from an ISO file. you can only create VMs from VHDs, Managed Disks or Managed Disk Images/Snapshots. If you want to use this ISO in Azure you would need to use something like Hyper-V on premises to create a VM and then export the VHD and upload to Azure.
You may create and customize the virtual machine in your on-premises Hyper-V setup and then export the VHD. Upload the VHD to Azure and create the Virtual machine out of it. Following guide is helpful!
Prepare a Windows VHD or VHDX to upload to Azure
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Thank You.