Arduino based LDR volume and source selection controller

And here's mine, almost finished.

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IR sensor can be placed just behind the front panel w/o hole. Remote work perfect,
I did hole in my first projects but it's not necessary.
Moreover, front panel w/o holes looks more stylish (my own opinion).

IR normally does not pass through the wood. Maybe you have a parasitic passage of reflected beams through some other opening in your construction. Put a remote in completely closed wooden box and see if it works that way.
 
Scientific literature reports that IR light penetration depth into wood is limited to some micrometers... So I totally agree with zdr. If you don't have direct or indirect (through a reflection) visibility from the source to the receiver, IR remote control will not work.