It is perfectly acceptable. Just did this. Have published and been rejected by journals where I was serving as AE. Have handled these types of submissions too. It did not influence my decision.

Understood. I was trying to relay that it was the head editor of the journal whose grad student submitted the paper and because the AE may be in the same field as the head editor it may become a COI. Should they show deference to their colleague or my critical review from outside the field?