Adjustment of payment which is received from father in law.

You can add it to your capital balance in balance sheet by showing it as Gift from relatives.

Also in ITR, show the amount as Gift from relative in Schedule of Exempt Income.

However note that the amount you received from Father in Law is in cash, so in case any query arise in future then your Father in Law shall be liable to explain the source of this money. 

Do i need to make gift deed of this amount of rupees 5 lacs.?

It is advisable to get Gift deed prepared on stamp paper and get his signature on same.

So it doesn't make sense of making gift deed now.

What can be done is make a declaration that your father in law has gifted you this money during his lifetime and get signature of his legal heirs.