Thank you for the response but I already checked whatever you mentioned before I posted the question here. DNS is resolving the correct IPs. I checked nslookup from the VM/DC where the URL is working and from AVD and seems it resolves the same IPs.
I did ipconfig /flushdns on the AVD but it did not helped. As I mentioned earlier custom DNS is applied to VNET so all the VMs and AVD inside the VNET shares the same DNS.