The Latics took the lead at Wembley after 63 minutes through a Jordi Gomez penalty and looked set to book a return to the famous stadium for a repeat of last season's final appearance, when they famously defeated Manchester City to lift the trophy.
Powell came on as a substitute for Callum McManaman five minutes later, but unfortunately for Wigan they could not hold on. Per Mertesacker equalised for the Gunners in the closing stages, before the Barclays Premier League outfit clinched a 4-2 triumph on penalties after extra time.
In the Championship, Jesse Lingard netted for the second match in succession to open the scoring in Brighton & Hove Albion's 3-0 win at home to Charlton Athletic.
Lingard raced away from Michael Morrison before slotting in with a cool finish to make it 1-0 after 11 minutes and later set up Leonardo Ulloa for the second, with Jake Forster-Caskey rounding off victory. Davide Petrucci, currently on loan at Charlton, did not feature.
Michael Keane was also on the scoresheet as he headed Blackburn Rovers into a 3-1 lead at Sheffield Wednesday just before half-time. However, the hosts hit back to claim a 3-3 draw thanks to two late strikes from Atdhe Nuhiu.