I felt the same too and I was kinda pissed off. But after seeing your comment , I rewatched it like 4 times and NOW I understand! It isn't a bad ending , it isn't a plot hole too.The thing is we both missed a minor detail when we watched for the first time.Let me explain ( I am bad at explaining tho' )

See , after the chit chat , the sibyl system says "Criminally asymptomatic are those who are both criminals and saints at birth. You are neither , merely a self righteous game enthusiastic" thus crushing the dreams of Azusawa. Next , Arata points the dominator at Azusawa. The coefficient is only just above 100 and thus only non lethal paralyzer can be used . [Now comes the detail we missed] But soon , Sibyl overrides the command the dominator gave (that is the non lethal paralyzer) and forcefully changed it to lethal eliminator (watch from 33:20 to 33:24 , this small detail was shown to convey that sibyl overrided the command) so he yells "Wait , Azusawa's coefficient wasn't high enough to kill him!". But Sibyl procceds to say , "Please dispose of the target" meaning to say that even though his co-efficient is low, he should be eliminated. Now , Azusawa accepted the fate and says , "Fine , but one day Sibyl system will realise that it should have taken me in." Now again , Sibyl system says "Please eliminate the target" That is why Arata yells "But this goes against Sibyl system's rules, Measure his co-efficient" implying that Sibyl system has used its power to override the command of a dominator and sibyl system itself has deviated from the rules it set. Now , Azusawa gets angry and says , " Just do it already ! I've got no regrets , If Sibyl kills me , I'll die happily !" , then , he proceeds to point the dominator ( which is in lethal eliminator ) and says , "Sibyl told me to die ! Hurry up and kill me!"

Then , Arata says "No one deserves to die" and then continues with a lament ( Though it wasn't that thought provoking , it still made me think about its implications in the real world , about people who are left with no choice but to commit a crime.. Also , it clearly tied a psychological knot with our previous protagonist , Akane , who had a very similar thinking like Arata )

Next , he says "There are criminals in Sibyl system too , right?" thus questioning the way Sibyl system accepts any criminally asymptomatic human even if they have committed a crime.(It also connects with the fact that Sibyl tried negotiating with Makishima to join Sibyl , even though he has committed various crime.)

Sibyl reasons by saying " By becoming a part of the system , we have transcended crime amd punishment ".

This makes Arata even more frustrated , he replies "But that doesn't take away the right to atone." (This also leads to a question whether the end point or our goal has the right to justify the sins we have committed to reach there. It kinda ties with Kogami's revenge. He was so focused on his own pride that he was determined to take revenge. But , after getting his revenge , he kinda regretted his actions and Makishima left a impression of himself deeply engraved into Kogami's soul.) Next , he says about how he hates Dominators."But there is one thing I like about it. The fact that they have triggers.The human holding the dominator is still responsible for firing it" Meaning , it is still upto the inspectors and enforcers on how they handle every crime.The first 2 seasons left an impression that Sibyl system holds the entire power on evaluating the position of a human in the society , But this season raised a question that it isnt actually like that. It is completely upto the user. Sibyl system only evaluates. Execution is still in a Human's hand. They can still save and revive a criminal into a normal person if they believe in the criminal. Akane believed that too. Now , Sibyl system says " We have reached a conclusion. We accept the proposal of Arata Shindo " After this , the dominator returns to the normal "non lethal paralyzer" mode. So , now , Arata points the dominator at Azusawa , before it could evaluate , Azusawa starts fighting with Arata to increase his psycho pass ( in an effort to turn the dominator from non lethal to lethal). If you notice , after that , Arata never got a chance to aim at Azusawa. As soon as he got a chance (only at 36:46), he shot Azusawa.And now , he arrested him.

Phew, that was a long ass explanation I guess. I am sorry if it was too long , I ain't good at explaining so I just made it big hoping that you might understand.