During WW2, submarines on patrol were out of contact with friendly forces for extended periods of time. Even when operating in a Wolf-Pack, they generally couldn't tell exactly where their pack-mates were or how they were doing. While they could broadcast their status using their radios, this was limited to avoid radio intercepts and direction finding giving away their presence in an area.
This meant that more often than not, the first indication that a boat was lost was either a boat missing a radio check-in or the boat being overdue on returning to port (an example of this is the Wahoo). However, without confirmation of the boat actually being lost, they would still be marked as On Patrol. Removing the boat would be admitting the boat, and its crew, were gone.
Leaving it as On Patrol turned into a mark a of respect for those lost, and the tradition stuck.