The sentence suggested by your teacher is incorrect. This creates two independent clauses pushed together without any conjunction. A comma cannot fix this because it will create a comma splice, "Then he saw the brother, he thought he was dead." Think of this sentence: "Then he ate the cake, he enjoyed it very much." People make the mistake of joining these two sentences with a comma because they think of a comma as "a speaking pause," and in spoken language someone would say these two sentences and pause between them. But in written language it doesn't work that way.
A comma could fix this (as well as a dash) by changing the last independent clause thus: "Then he saw the brother, the brother thought dead." I would use a dash: "Then he saw the brother--the brother thought dead." I would actually change the sentence to make it more clear: "Then he saw the brother believed to be dead." For the reasons John Lawler pointed out, it is not necessary to add "who was" in the sentence. That said, I still might add the "who was." Other readers can weigh in on that clarity issue.
The sentence is ambiguous, though. WHO thought he was dead? Was it the speaker of the sentence, or another he? Grammatically, as Professor Lawler pointed out it is clear, however I think readers might wonder. (I think that's what your teacher was thinking.) "Then John saw the brother Bob thought was dead." (to add names to help you see the point I'm making.) I think if you change "thought" to "believe" it might be better: "Then he saw the brother he believed was dead."
Speaking as a teacher, I have marked things on student papers, and then had students come back and ask "Why did you mark this wrong?" Most of the time, I was correct. However there have been times when I look and cannot see why I marked something wrong, or see that I was not considering something else. I always correct my error and say "I'm sorry. You were correct." Politely ask your teacher, "Can you help me understand why this is incorrect?" I don't know your cultural background, so possibly this is not acceptable. Remember, teachers are guides. They are not perfect. If they are good, then they realize they are students just as much as the students they teach.