There are two problems in your code.
Your wait loop is infinite.
Try i
<65535
RB3 is set as analog input by default, thus reading PORTBbits.RB3 always returns zero.
You can either setup RB3 as digital port through AD1PCFGL or manipulate LATB instead of PORTB.
Code:
#define LED1 LATBbits.LATB3
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To debug the code yourself, you can perform source level debugging in Proteus, importing the xc16 .cof file. But debugging is probably much more comfortable with MPLAB simulator.