He doesn't need to set EA, no interrupts are needed (his loss).

Rashu, this is your chance to excersize your fault finding skills. In addition to Andy, who has pointed you in the right direction, which is to cut your problem up in little pieces and see which piece isn't working exactly, I can give you this advice:

On the 8052 code, I would suggest you temporarily comment out the CJNE A,#31H,NEXT instruction and the ACALL TXD instruction. This will make the port pin toggle on every byte received, which will make troubleshooting much easier.

On the hardware side, consider how you have the LED connected to your controller. Generally with 8052 type controllers, the outputs are open collector (consult your data sheet to confirm this), which can only provide a STRONG 0 and a WEAK 1. So your LED should be connected from +5V via a resistor to the port pin.