"Have a read of this, I know it's not you, I know we'll be all good," Mr Roberts-Smith said, according to the other man.
The still-serving special forces soldier, codenamed Person 14, says he took a few minutes to read the statement and then looked up.
"I said, 'Well, that's how I remember it'," Person 14 testified before the Federal Court last week.
"(He said) 'Oh, so it's going to be like that, is it?'"
The evidence, given in Mr Roberts-Smith's defamation trial resuming on Monday and disputed by the Victoria Cross recipient, portrays the handing over of the statement as the moment the October 2018 meeting turned sour.
Mr Roberts-Smith had recently filed his defamation claim against three newspapers, denying their reports that alleged he'd committed murders and war crimes during his six tours of Afghanistan.
Person 14 says he told the retired SAS corporal he'd been "pretty loose at Whiskey 108", referencing a Taliban compound in Uruzgan province raided by Australian special forces soldiers in 2009.
The newspapers say Mr Roberts-Smith, now 43, murdered an unarmed, disabled man outside the compound.
Person 14 says he then told Mr Roberts-Smith "it happened again in 2012" - an apparent reference to the war hero's alleged order that Afghan soldiers shoot dead a detainee "or I will" during a joint mission in Khaz Uruzgan.
"I said to Ben that's there no way I am going to get up on a stand and lie and I hope no one else does," the witness said on Friday.
That led to a "massive pause".
After looking out a window for about 30 seconds, Mr Roberts-Smith said "I don't even know what to say .... that's it then".
"I stood up and said 'thanks for the coffee' and walked away," the witness testified.
Mr Roberts-Smith, who disputes Person 14's version of events, earlier rejected the suggestion the other soldier's articulated stance made him "panic".
"No … I was surprised," the retired soldier testified in June.
He continued that he was "in shock" and believed that "the whole thing was a stitch-up".
The retired SAS corporal, who received his VC for acts in 2010 during Australia's largest battles in Afghanistan, is suing The Age, The Sydney Morning Herald and The Canberra Times.
He says they falsely painted him as a war criminal who broke the moral and legal rules of military engagement during his six tours between 2006 and 2012.
The decorated veteran rejects all the claims against him while the media outlets advance a truth defence.
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