This transaction is not between son and father. It is between a man and his FATHER IN LAW. Similarty property transfer is between the daughter and her father and not to the person who gave the loan. So this transfer can not be set off against the loan. ( Infact this seem to be a Benami Transcation )
If it is claimed that it was a gift then any gift above Rs 50,000/- has to be registered. Also per year limit of receiving gift from a relative ( Not blood relation ) is Rs 50,000/- .
I think it is an income in the hands of FATHE IN LAW and also he needs to pay penalty and interest.