I do not think ticks10 is incremented twice. The other variable is just ticks. Could it be a bug? I tested the same calling function (timer alone), and it worked fine. maybe the error is not in this part of the code.

void lcd_time(void)
{
    TR1 = 0;
    IP0 &= 0xF7;	// set timer 1 isr priority to 0
    IP0H &= 0xF7;
    TMOD |= 0x01;
    TAMOD = 0x00;
    T1_Start();
    ET1 =1;
    EA = 1;
}

void T1_Start (void)
    {
    TR1 = 0;
    TH1 = (34816); 
    TL1 = (34816); 
    TF1 = 0;
    TR1 = 1;
	}

void buzzer_timer(void) interrupt 3 
{
    T1_Start();  // start timer again

    	if (++ticks10 == 250)
	{ 
	    if (++ticks == 40){
	    P2 &= ~0x0C;
	    ticks = 0;
	    SCON &= 0x50;
	    LCD_Flag = 1;
	    TR1 = 0;
			}
	  ticks10 = 0;
	  }
	return;
}