I too made the same assumption in using 'is' in my translation. I also agree that the correction "My favorite tea with lemon" is not correct English. On a hunch, when the same sentence came around for a second time to be translated into English, I inserted a hyphen (-) in place of 'is': "My favorite tea - with lemon." My answer was then accepted as correct. I suspect there is a linguistic overlap. Time and practice will tell if that is indeed the case.
Yes, Ukrainian phrase needs a dash to be a complete sentence:
Мій улю́блений ча́й — з лимо́ном.
In oral speech, this would be pronounced with a pause in the place of dash, and a different intonation.