Colleague demanding to add additional participant to funded grant
The grant has been awarded to you, so you are responsible for making decisions on how to allocate the funding. If a bad choice results in less success or output, this will reflect badly on you much more than it will on other grant participants. So if you do not consider that adding this person will positively contribute to the results, you should not add them.

As others mentioned in the comments, you should discuss this with your department chair, and make sure that you clearly state your opinion and give enough reasons. Your chair might have additional motivations and it could happen that they want to add this person for different reasons (which would make your situation more complicated), but likely (hopefully) they will support you in your decision.