Slightly confused by this next bit and not 100% confident I understood completely but here goes.
If the reading was 75mg/l (i.e. higher than the 40 range of the kit) you dilute the test solution with de-ionised water at a rate of 1 to 1 - 50% test solution and 50% de-ionised water which results in a measurement of 37.5 x 2
It does makes sense... but you start by saying the end result, which makes it more confusing.
So you have 5ml of water reading something above 40mg/l.
You add 5ml of de-ionized water, meaning you now have the same amount of NO3 in twice the water volume (10ml).
If you can read something bellow 40mg/l, let's say 25mg/l, in 10ml of water, it means you originally had 50mg/l of NO3 (=25x2) in 5ml of water.
If, on the other hand you still read 40mg/l, you have to repeat the process, adjusting the math.