Hey Ajay,
IR sensor have three terminal: VCC, GND and Output. Vcc connect with power supply as per your sensor specification and GND connect with common of system and output terminal connect with input pin of atmega8. In software side you need to configure I/O register for define pin as Input.
You can use IR sensor as switch cause of both are digital. when switch pressed, print text on LCD same when IR sensor is interrupted means it will be high or low level and print text on LCD.