awk -F : -v last=${RESPONSESTOP:-0} -v first=${RESPONSE:-0} '
   /^#/ { next; } 
 
   NR >= first && (last == 0  || NR <= last) { 
        print $1, $2, $3, $0
    }
   ' param.txt | while read x y z i 
   do
        echo "first field $x"
        echo "second field $y"
        echo "third field $z"
        echo "whole record (i) $i"   # <missing close quote was here
 
        if [[ $z == "GOD" ]]
        then
                function1 $x $y
                function2 $y
                function3 $y
        fi
        if [[ $z == "DEVIL" ]]
        then
            function4
        fi
   done

START=2; STOP=7
linenr=0
while IFS=: read x y z ; do
  linenr=$((linenr+1));
  [ $linenr -ge $START ] || continue
  [ $linenr -le $STOP  ] || break
  case $x in 
    \#*) continue
  esac
  echo " Do your stufff with $x $y and $z at $linenr" 
done < infile

 Do your stufff with RED value2 and Y at 2
 Do your stufff with BLUE value4 and Y at 4
 Do your stufff with RED value5 and Y at 5
 Do your stufff with RED value6 and Y at 6
 Do your stufff with BLUE value7 and Y at 7