Good question. I guess the root of the confusion is that the verb होना is used as a tense auxiliary.

So, नेहा वहाँ थी is the simple past 'Neha was there' and 'नेहा वहां होती थी' is the imperfect past tense 'Neha used to be there'. In the first sentence, होना is the main verb and in the second sentence, it is both the main verb and the auxiliary.

Note: नेहा वहां होती थी' sounds somewhat unnatural and I provided the sentence only as an example.