Police began investigating the attempted murder of Angelo Ziotas after the 37-year-old was rescued from his burning Essenza Italian restaurant in Surry Hills about 11am on July 4.
His 18-month-old kelpie Lexie suffocated in the blaze.
But the fire and the two stab wounds in Ziotas's back were self-inflicted, prosecutor Ernest Chan told Parramatta Bail Court on Saturday.
Police arrested Ziotas on Friday after poking holes in the original story.
The court was told Ziotas's yarn claimed he was alone in the residence above the restaurant when an intruder came up behind him and asked: "Do you like to burn?"
Ziotas further claimed he was stabbed twice, passed out and awoke to the property ablaze.
But footprints in the restaurant, the way the fire was started, the way clothing was discarded and the significant amount of CCTV made for a strong case that Ziotas was behind it all, Mr Chan said.
Magistrate Paul Mulroney refused to release Ziotas on bail, rejecting an argument from his lawyer that jail wasn't a certainty.
"On the facts before me, it is an extremely strong prosecution case," Mr Mulroney said
"A full-time custodial penalty is nigh on inevitable (if he is convicted)."
Setting a building on fire posed a great risk to the general community and the people who respond to the fire, Mr Mulroney said.
"If Mr Ziotas is in such a position to be motivated (to do this), the real risk is that he has the motivation to commit further serious offences."
Ziotas sat quietly in handcuffs as he appeared via video link from Sydney Police Centre.
He is due to appear in Central Local Court on Tuesday.
