I'm betting that's a district practice, not a council one. I've seen quite a few backwards districts, but usually when it gets to a council level things are more per BSA GTA direction. But then again, I'm in a very large council. Some councils are the size of some of our districts.
As for the practice, it's just wrong and a waster of time. The SM has signed the eagle project and the eagle application. If the SM won't sign those, there is a well written process to pursue rank under disputed circumstances. Requiring a SM reference letter is just a weak, ill-defined, dead-end, non-BSA process. Did I mention wrong?
I don't know about calling it wrong. I can see redundant, not to mention extra work for the SM And yet every time I sign off I think about a scouts pros and cons. I've already thought about the basics of a letter of recommendation. Those insights would always be positive (or else the SM would not have signed the app) so it could help the BOR get to know the scout.
But then again, our EBORs are fairly easy going, compared to the extremes I've heard about here.