To make WordPress update without the need of using FTP, add the following line to wp-config.php
/** Sets up auto update without FTP */
define('FS_METHOD','direct');
To Correct Permissions to Update WordPress installed on IIS, basically you need to give read/write permission to an "Authenticated users" and change the site Application Pool identity to LocalSystem
In IIS manager
- Go to Application pools and choose the one used by your WordPress site.
 - Right Click and choose Advanced Settings...
 - Change the Identity to LocalSystem
 - Click OK to save changes.
 
- Choose your WordPress site from the sites list
 - Right click on it and click on Edit permissions
 - Go to security tab and click on Edit... (Group or user names)
 - Click on add and type "Authenticated users"
 - Give read/write permission to an "Authenticated users"
 - Click OK to save changes.
 
Now try to update WordPress and it should work perfect !