DO NOT take the below as 'bashing' try to look at it as 'positive criticism'

I had 15 minutes waiting for someone and since my other activities are totally different (it takes 2 hours of rearranging the lab to switch) than what I am currently doing I has this as idle time.

I decided to "be nice" and edit your code to an understandable form and, lo and behold, got totally lost.

You use labels like 'UNIVERSE', 'WORLD' 'FLAG1' which are totally meaningless and jump all over the place. In addition to the lack of structure there is the lock of applying the '51 in an effective way e.g. why a byte for each key, try to stick them all in one bit addressable byte and see how simple your code gets (e.g you can compare ALL keys in ONE instruction). You also make the CAPITAL sin of having the shift key stuck. One last comment: how about a nice tabulation? you have labels, instructions and comments all to (sometimes) be found in columns 1-4

below you will find how far I got before getting lost

DELAY_HIGH EQU   003H
DELAY_LOW  EQU   018H
           
Key0pressed EQU   031H
FLAG_1     EQU   Key0pressed+1
FLAG_2     EQU   033H
FLAG_3     EQU   034H
FLAG_4     EQU   035H
FLAG_5     EQU   036H
FLAG_6     EQU   037H
FLAG_7     EQU   038H
FLAG_INVALIDKEY EQU 039H
FLAG_PUSH  EQU   040H
NEWKEY     EQU   041H

       ORG 000H
           MOV   SP,#050H
           LJMP  START
           
       ORG 000BH
           ACALL T0_ISR
           RETI
                 
       ORG 001BH
           AJMP  T1_ISR

START:     MOV   IE,#08AH
           MOV   TMOD,#011H
           MOV   P1,#0FFH; make PORT 1 as an input port
           MOV   P2,#00H
           MOV   R0,#00H
           MOV   R7,#00H
           CLR   Key0pressed
           CLR   FLAG_1
           CLR   FLAG_2
           CLR   FLAG_3
           CLR   FLAG_4
           CLR   FLAG_5
           CLR   FLAG_6
           CLR   FLAG_7
           ACALL TIMER_1
KEY:       MOV   A,P1
           CPL   A
           JMP   KEY


;; timer 1 interrupt
;; performs ??????????????
T1_ISR:    PUSH  ACC
           PUSH  PSW
           CLR   TR1
           MOV   PSW,#00H
           ACALL ReadKeys;             ; check whether any key is pressed or not
           JNZ   CALCULATE             ; key is pressed then jump to calculate to check is the key     
                                       ; pressed is valid key or the previous key is kept pressed till    
                                       ; now
           JMP   ALTER;                ; If no key is pressed then clear the flag which check whether the 
                                       ;  previous key is kept pressed till now

CALCULATE: ACALL ReadKeys              ; again check whether key is pressed or not
           JZ    ALTER                 ; if no key is pressed then jump tp clear the flags and start the  
                                       ; TIMER 1  again
           ACALL CONVERT               ; if the key is pressed then check the key pressed is a valid key  

                                       ; or not depending on the flag FLAG_INVALIDKEY
           JBC   FLAG_INVALIDKEY,ALTER ; if this flag is set then the key is invalid and go to ALTER
           ACALL TIMER_0               ;if the key pressed is valid then jump to TIMER 0 for the debounce delay
           POP   ACC
           POP   PSW
           RETI

ALTER:     CLR   FLAG_PUSH             ;clear this flag indicating that the previous key is not being     
                                       ; kept pressed and the key which is pressed is now released
AGAIN:     ACALL TIMER_1               ; call to timer 1 for again scanning the keys
           POP   PSW
           POP   ACC
           RETI
           


;; timer 0 interrupt
;; performs ??????????????
T0_ISR:
       PUSH ACC
       PUSH PSW
       MOV PSW,#00H
       CLR TR0 
       ACALL ReadKeys                  ;chekh whhether the key is pressed or not again
       JZ ALTER_1                      ;if not pressed then jump to ALTER 1 for clearing the flags   

                                       ; and call to TIMER 1 agan for scanning the key's
       ACALL CONVERT                   ;if key is pressed check it is valid or not
       JBC FLAG_INVALIDKEY,ALTER_1     ; invalid key indication if this flag is set
       JB FLAG_PUSH,COMPARE            ; if this flag is found set then it means that the key found  

                                       ; to be pressed is the same key previously kept pressed
       SETB FLAG_PUSH                  ; if FLAG_PUSH is not found to be set then it means that the  

                                       ; valid key is a new key
       MOV NEWKEY,A                    ; move this newkey value to the flag NEWKEY
       JMP HOME                        ; jump to home

COMPARE:
        CJNE A,NEWKEY,CLEAR            ; if the FLAG_PUSH is found to be set then control comes to this      

                                       ; statement for checking whether the key kept pressed for a long time      

                                       ; is the previous one or not
        JMP AGAIN_1                    ; if it is the same key kept pressed then do nothing and              

                                       ; again call to TIMER 1 so that scanning of keys can be done again    

                                       ; but dont clear the FLAG_PUSH flag this time because the key kept       

                                       ;pressed has not indicated to be released till now

HOME:            
 JB ACC.0,COOL_0; if these bits are ON then it means 
 JB ACC.1,COOL_1; which key is pressed at this moment
 JB ACC.2,COOL_2; and accordingly jump to that 
 JB ACC.3,COOL_3; 
 JB ACC.4,COOL_4
 JB ACC.5,COOL_5
 JB ACC.6,COOL_6
 JB ACC.7,COOL_7

CLEAR:
     CLR FLAG_PUSH   ; If the key being kept pressed is not the same previous key then            

                     ; it means that the previous key kept pressed has been released              

                     ; and this is the new key which is pressed and it is valid ... so            

                     ; jump to HOME
     JMP HOME
                                       
ALTER_1:
    CLR FLAG_PUSH
AGAIN_1:
    ACALL TIMER_1
    POP PSW
    POP ACC
    RET
                                            
COOL_0:
    JB Key0pressed,WORLD ; if this flag is found to be set then it means the key is being pressed      

                    ;previously and so jump to WORLD for making OFF LED that is corresponding to  

                   ; this key
    SETB Key0pressed     ; set this flag coz the key is pressed fot the 1st time
    JMP UNIVERSE    ; jump to universe to make the corrersponding LED ON

COOL_1:
    JB FLAG_1,WORLD
    SETB FLAG_1
    JMP UNIVERSE

COOL_2:
   JB FLAG_2,WORLD
   SETB FLAG_2
   JMP UNIVERSE
COOL_3:
   JB FLAG_3,WORLD
   SETB FLAG_3
   JMP UNIVERSE
COOL_4:
   JB FLAG_4,WORLD
   SETB FLAG_4
   JMP UNIVERSE

COOL_5:
   JB FLAG_5,WORLD
   SETB FLAG_5
   JMP UNIVERSE
COOL_6:
   JB FLAG_6,WORLD
   SETB FLAG_6
   JMP UNIVERSE
COOL_7:
   JB FLAG_7,WORLD
   SETB FLAG_7
   JMP UNIVERSE


WORLD:
    MOV R0,A   ; if the key is pressed second time then
    MOV A,P2   ; make the corresponding LED OFF while all
    ORL A,R0   ; other LED's are not been effected at all
    XRL A,R0
    MOV P2,A
    JMP STATUS ;jump to status to CLEAR the flag which indicated the key is being pressed for the 

               ; 1st time or 2nd time
                                            
UNIVERSE:
    ORL A,P2  ; If the control comes here then it means that the key being pressed is pressed for 

              ; the first time and so the corresponding LED is maked ON
    MOV P2,A
    JMP AGAIN_1

STATUS:
    JBC Key0pressed,AGAIN_1; flag is cleared to make it fresh key
    JBC FLAG_1,AGAIN_1
    JBC FLAG_2,AGAIN_1
    JBC FLAG_3,AGAIN_1
    JBC FLAG_4,AGAIN_1
    JBC FLAG_5,AGAIN_1
    JBC FLAG_6,AGAIN_1
    JBC FLAG_7,AGAIN_1

ReadKeys:
    MOV A,P1; the key pressed 
            ; bit will be low so the value is transfered to ACCUMULATOR for further processing
    CPL A   ; the value in ACC is complimented coz all the bits in PORT 1 are high as it is an input port
    RET
                                       

TIMER_0:
    MOV TL0,#DELAY_LOW
    MOV TH0,#DELAY_HIGH
    SETB TR0
    RET
                                            
TIMER_1:
    MOV TL1,#0E0H
    MOV TH1,#0B1H
    SETB TR1
    RET
                                       
CONVERT:
     CLR FLAG_INVALIDKEY ; this subrountine check the validity of the key that is pressed ... and 

                         ; indicates it by the flag FLAG_INALIDKEY                  
      CJNE A,#01H,SECOND
      RET
SECOND:
      CJNE A,#02H,THIRD
      RET
THIRD:
     CJNE A,#04H,FOURTH
     RET
                                                      
FOURTH:
     CJNE A,#08H,FIVE
     RET
FIVE:
     CJNE A,#010H,SIX
     RET
SIX:
     CJNE A,#020H,SEVEN
     RET
SEVEN:
     CJNE A,#040H,EIGHT
     RET
EIGHT:
     CJNE A,#080H,BAD
     RET
BAD:
     SETB FLAG_INVALIDKEY
     RET


;************************************************************************************************

**
    END

Erik