Is it possible to create a sub site in JIRA agile on demand version and under that sub site, different projects can be created. Idea is to separate departments with their subsites and respective projects.
No, there's no structure in JIRA for what you've vaguely defined as "sub sites".
A standard answer here might be to look at the use of components in projects, but I'd also suggest you have a look at project categories. You could have a set of project categories, one per "department", and then have schemes that separate out all the departments. It would not be "sub sites", every one would still go to http://yourjira/ but you can make it so they only see their own stuff.
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