I'd have happily deferred my (young year R) ds if I'd been able to do, even though he's started school fluently reading and able to count to where ever you want (or 129 if you ask him how far he can count to... apparently this is his definition of infinity) but socially he'd be better in the year below.
They've told you with plenty of time to spare for things to change, but that might be better to bring it up now rather than have him all excited about going up and bring it up at the last minute and you saying "why didn't they tell me earlier?"
I would wonder whether they are gently leading up to tell you other things he's not coping with. How do you know he's exceedingly bright? Is it your opinion, or have they said so too? Knowing numbers 1-9 at age 3 isn't amazing, I expect there'll be several others that know them, and probably beyond too.
I would ask for a meeting with his key worker or main teacher to discuss this. Ask when a decision has to be made. Ask why exactly they want to defer. If it's only toileting then roll your eyes at them
. Get your worries in about him repeating the stuff, but don't say he's really clever, that'll get their backs up. It may be that they take a small group of more advanced ones to do more, or it may be that in class he's not showing he knows it at all.
Then go on to see how they're trying to help him gain the skills he hasn't got. Somewhat worried about him not taking part in circle time at all. That's ringing slight alarm bells for me. Are they not bothering encouraging him to join (bad on their part) or is he being really awkward about it (so you need to work on it together)? At the preschool my dc went to I never knew a child not do circle time at all, some were wrigglier etc. than others, some wouldn't manage a whole time, but they did get them all (from age 2.6yrs) sitting for some of it.