Remember that the reading level should, theoretically include ability to infer and deduce, not just decode. My DC (yr 3) has had high ability to decode and read the words and story fluently... but is not up there with the comprehension, inference, etc. The desire to increase reading levels due to fluency is not sufficient to move up. So we find extended reading, outside reading, etc. and ask, ask, ask him questions (easy at first, building up to having DC make connections or inferences).
I personally think that at young ages, the ability to answer concrete questions (yes, no, easily find answer on page, do math calculations, etc.) is related to the concreteness of their understanding. Much easier for them. As children mature, gain more life experience, see and do more, they can move away from the concrete and start inferring a lot more. It can be as simple as a time issue.
If the books your DS is getting from school are too "easy" and leave him disheartened, see if with questions, you can have him change personalities of the characters (what would happen then?), change the setting, see if the story is similar to any others that he has read, etc. Anything to get him thinking beyond the story...
You could go so far as to explain to your DS that since you know he is so clever and that you figure the story is super easy (bolstering confidence), he should try to come up with new character or setting or event to add to the story...can he make it more exciting? Just some thoughts based on what we've done.
If coming up with a new character or setting is too tough...you can insert a character or plot device he knows (what if the character in the book met a Jedi? What might the character say to the Jedi? or what if the character found a magic ring...what would the character wish for or do?)