I came across it through a study note provided in a reference book but couldn't find what makes this sentence wrong as the answers were not provided in the book. I am more interested to know about the concept behind the sentence correction.
See ELU's answer here, which discusses the issue, probably more acutely and accurately than you'll find in 99% of other places, including ELU and ELL answers. If your question hadn't been transferred it could have been marked as a duplicate.
Basically, the answer is "it depends on what you mean by wrong". If you are talking about prescriptive grammar it's "wrong" because it needs to be you and he because that is the subject of the sentence. However, as the answer I linked to shows, it is not necessarily "wrong" according to natural grammar. Some linguists have started using the terminology informal (but standard) English to cover this situation. Basically, you need to choose your grammar, and what informs that is often who do I wish to please, or am I expected to use formal English forms here? If you want to write in a form that will please most prescriptive grammarians, use you and he. But that's not your only option.