You forgot a TCOUNT variable. Your code to change the P1.5 was very complicated. Just use cPL P1.5.

Then you should better to take into account the execution time of body of
ISR so try MOV TL0,#TIL-tau, where tau is equal of the execution time.

Below is the corrected example.
George

TCOUNT EQU 040H ;This is an address in IRAM
ALARM EQU 000H ;This is NOT an address of BIT memory
TIH EQU 000H
TIL EQU 0FFH
ORG 0000H
JMP MAIN
ORG 000BH
T0_INTR: DJNZ TCOUNT,T0_EXIT
MOV TCOUNT,#20 ;Set TCOUNT to 20 to wait for 1 second
CLR TR0 ;Turn timer 0 off
MOV TL0,#TIL-tau
MOV TH0,#TIH
SETB TR0 ;Turn timer 0 on
CPL P1.5
T0_EXIT: RETI
;
MAIN: MOV TMOD,#001H ;Set timer 0 to 16-bit mode
MOV TH0,#TIH ;Initialize TH0 to overflow every .05 seconds
MOV TL0,#TIL ;Initialize TL0 to overflow every .05 seconds
SETB ET0 ;Enable timer interrupt 0
SETB EA ;Enable all interrupts
MOV TCOUNT,#20 ;Set TCOUNT to 20 to wait for 1 second
CLR P1.5
SETB TR0 ;Turn timer 0 on
JMP $