Shankara,

Are you sure your SW does not write zeroes to P3.1, either directly or writing to SBUF ?.

The 8051 I/O pins only apply a strong '1' during '0' to '1' transitions for a short while, but apply relatively strong '0's. If P3.1 outputs a '0' and the 40xxx outputs a '1', one of them might be damaged (frequently the most expensive IC, of course!).