Should oil from the upper gear assembly reservoir leak into the u-joint bellows through drive gear assembly. I noticed the oil leaking due to hole in u-joint bellows, which leaked onto lower unit.

No, the upper yoke seal has failed and usually there is a deep groove worn into the yoke as well. Replace the yoke and seal.

After you replace the yoke seal on your drive you'll want to replace that bellows too.

Thanks for the feedback.