Leon doesn't tell the priest the truth about the old man Teofilo's death because, as he later tells Father Paul, it isn't necessary.
Not long after Leon and Ken have found Teofilo's dead body slumped under a cottonwood tree, they encountered Father Paul. The young priest asked the men if they'd found Teofilo. Leon replied that everything was ok and that Teofilo wouldn't be staying at the sheep camp alone anymore.
Unbeknownst to Father Paul, Teofilo is, in fact, dead, and Leon and Ken have wrapped his body in a red blanket in preparation for his forthcoming Pueblo funeral ceremony. When Father Paul subsequently finds out that the men had lied to him, he understandably wants to know why. Leon can only answer by saying that it wasn't necessary; that is, it wasn't necessary for Father Paul to know about it.
It would appear that Leon and Ken didn't care to trouble Father Paul with the news of Teofilo's death because they wanted to ensure that the old man had a traditional Pueblo funeral and not a Catholic one. This is somewhat ironic given that, in due course, Leon's wife Louise will suggest getting Father Paul to sprinkle holy water over Teofilo's grave.