This circuit is used to detect objects by reflected infrared light. It can be built into a cylindrical enclosure just like an inductive proximity switch.
Part of - InfraRed Detector for Proximity Switch
This is also useful as a level detector for colored liquids like oil. This has some immunity to ambient sunlight as it detects ac pulses.
IC 555 is used as an astable oscillator and it flashes the Infra red LED D1 at a high speed, The object close to this LED reflects the light along with the ambient light which may also be sunlight.
IR Led's and Diodes
The types available are various and polarity hard to detect even photo IR transistors can be used. The IR Led can be tested in diode mode of a DMM (battery should be in good condition) it should give around 1.1V drop in proper polarity.
Se a Related circuit here Optical Obstacle Switch.
An IR detector diode or photo diode can be tested in the same way the drop will be 0.5V at 1 feet from a 60W lamp (no sunlight), closing the IR photo diode with your hand will be an over range on DMM this will happen on proper polarity. the photo diode shows around 10k ohm resistance in daylight and in Mega ohms when covered also the photo diode detects light on reverse bias and used like that.