In this question we are dealing with two actions that happened in the past. So, we need a past perfect tense to deal with this situation.
The option B & D are out for their usage of simple past.
The construction of the sentence seems to be awkward.
Now we are left with A & E. The construction of A seems correct.
X had believed that combustion released phlogiston, Imaginary substance..(Appositive which modifies Ph)
in the case of option E, X had believed that Ph was released by combustion and ph was imaginary substance.
This is wrong. these two statements are contradicting each other. If they belive " Ph" relased, that means that they exists right,
they are not "imaginary substances any more".. so E is out.