A: Go straight one block and turn left at the corner.

B: I'm sorry?
A:Go straight one block and turn left at the corner. It's on your right.

(Can we use 'I'm sorry?' instead of 'Pardon?')

Yes, that works just as well.

All parts of this short dialog are fine!

Yes, you can use "I'm sorry?" instead of "Pardon?" to ask someone to repeat or clarify what they said. Both phrases are commonly used in conversations to politely indicate that you didn't hear or understand something. In the given scenario, person B might have not heard the instructions clearly and wanted person A to repeat or clarify the directions.