I am taking a text file from user and then posting that file back to the browser using ajax storing the content in db and then showing the content back to user page using Jquery post response. Now i want to something like this..
Read the text file from the user computer using javascript. Display the content and when he submits the page I will save the values.
You won't be able to read a file in user's computer due to security issues.
Can't be done in pure JS for security reasons. You would need to have the user upload the file to your server, and fetch the contents back through Ajax.
If you use Flash or Java, you should be able to gain direct access to the file. If you speak Flash/Actionsript, maybe SWFUpload's source code (especially the new client-side resizing functions) can serve as an inspiration.
Update: This blog entry should help. Read and write local files with Flash Player 10
Update: To elaborate on the "upload and fetch" thing, if you do the uploading in an IFRAME, you could even have the upload script simply output the text file's contents. Because the iframe belongs to your domain, you will be able to retrieve its contents via JavaScript when the upload has finished. As long as you send a content-type: application/text it should be fairly safe from any malicious attacks.
If you're ok with Firefox 3.6 support only check out https://developer.mozilla.org/en/Using_files_from_web_applications, otherwise you should use Flash, Java or silverlight for this.