How to use ARRAYFORMULA with OFFSET to previous row without getting circular reference error - google-sheets

Question

Example sheet: https://docs.google.com/spreadsheets/d/14ma-y3esh1S_EkzHpFBvLb0GzDZZiDsSVXFktH3Rr_E/edit?usp=sharing
In column B of ItemData sheet, I have achieved the result I want by copying the formula into every cell in the column, but I want to solve this using ArrayFormula instead.
In column C I have achieved the same result using ArrayFormula. However, for addition, column C is referring to cells in column B, while column B is referring to cells in column B. I.e. every cell in column B is adding 1 to the cell on the row above.
If I select the C3 formula text and paste it into the cell edit field for cell B3 (to not screw up cell references during copy - I know I could make them static references, but this is not my problem), the cell gets an error value of
#REF!
Error
Circular dependency detected. To resolve with iterative calculation, see File > Spreadsheet Settings.
Do note that the additions that need to be done are the same in both cases: Add 1 to the value of the cell on the previous row, so there is no circular reference involved. There is a starting value provided in B2, and cells in B3 and downwards should use the data from the B cell in the previous row.
Also, note that I did try File->Spreadsheet settings and enabling circular reference computation with max 25 items, but this only fills in the first two cells (B3 and B4).
How can I solve this problem? I would prefer having something like ArrayFormula, where the formula only exists in a single cell. But copy-pasting would be acceptable as long as any new rows, inserted in between or added at the bottom, would get the same formula added in column B.

Answer 1

Will matching items always be consecutive? It seems that way since you're comparing each Item cell to the cell above it right in your formula logic. That breaks an [unwritten?] rule of spreadsheet normalization; values' addresses themselves generally should not be treated as data.
IF you're committed to it though, have you considered explicitly using location as a data source? Example:
=ARRAYFORMULA(IFS(
NOT(LEN(A3:A40)),,
ROW(A3:A40)-3-MATCH(A3:A40,A$3:A$40,0)<=VLOOKUP(VLOOKUP(A3:A40,Items!$A$2:$D,2,false),DataPerColor!$A$2:$B,2,false),ROW(A3:A40)-3-MATCH(A3:A40,A$3:A$40,0),
true,
))
Just like your formulas, all that does in English is:
for each row,
if there's no Item, don't output any ItemData,
if the number that belongs in this cell¹ is less than or equal to the lookup, print it,
otherwise, don't output any ItemData
But then what is ¹ "the number that belongs in this cell" and how can we calculate it without using column B? I abuse locations of things to get it. Looking down your row B, each number that appears is just:
this row's number,  minus  
the row where items start [always 3],  minus  
the row number [in just the Item rows] of the first row containing this row's Item
Using the second-to-last ItemC as an example: the first ItemC is the 16th item listing, and the one we're looking up… the "second-to-last ItemC" is in row 21 of the sheet. 21-3-16 = 2 …the number you wanted.
If you can stomach that, it's a single formula and does work according to your specifications.