Allahu alam ask them to bring the daleel that they base their claims on.
"Tahlil" is haram, there is no confirmation for this in sunnah, rather it is a despised innovation. Al-Qur'an was sent as a reminder to the living, not to grieve over the dead.
All narrations allowing reciting Al-Qur'an for the dead are weak or fabricated. Rasulullah s.a.w.s. said "read surah Yasin ror those who are on deathbed" - on deathbed is not dead. Furthermore, it is only to recite surah Yasin if the dying understands Arabic, because it is the meaning of surah Yasin why it could be recited to the dying. Surah Yasin is a reminder of afterlife.
Regarding your narration: Rasulullah s.a.w.s. said: “When a man dies, all his deeds come to a halt apart from three: ongoing charity (sadaqah jaariyah), beneficial knowledge or a righteous child who will pray for him.” (Al-Tirmidhi; hasan)
There are no merits which go to the dead for that act, there is only sin for those who involve in such acts. Allah s.w.t. said: "This is the Scripture whereof there is no doubt, a guidance for the God-fearing" (2:2). As there is no guidance for the dead, it clearly shows that Al-Qur'an is for the living.
Hadeeth saying: "For everything there is a heart, and for the Qur'an this is Surah Ya Sin and who reads it, it is as if he has read the Qur'an ten times", is fabricated.
The Hadeeth related by Abu Dawood "Recite Yasin on your deceased" was declared weak (dhaeef) by Abu Dawood himself, and Ibn Taymiyya held the same opinion and Al-Dar Al-Qutni said regarding the narration: "In the chain of narrators of this hadith there is confusion. Its text is obscure and is not correct."
You can make dua for dead stipulating that they died in Islam. Things that can be done on behalf of the dead are: ask forgiveness for them, fasting, paying debts, hajj.