The treaty cost of better Italian cruisers

Could Italian heavy cruisers have received much better armour and anti-aircraft weapons?

Yes, but they would need to be much larger, making the breach of treaty limits obvious to everyone.

The desired improvements required a materially larger hull. Italy was already stretching treaty limits, but a much heavier design would have made the overage impossible to disguise. The difference would be obvious to naval specialists and to ordinary political or foreign-affairs journalists comparing the ship with treaty contemporaries. Treaty architecture therefore shaped the cruisers' technical balance and how far a government could conceal departures from the rules.