Step 1: Understand the nature of the reaction.
Formation of ammonia from nitrogen and hydrogen is given by
\[
N_2(g)+3H_2(g)\rightleftharpoons 2NH_3(g)+\text{Heat}
\]
Since heat is released during the reaction, the forward reaction is exothermic.
Step 2: Apply Le Chatelier's principle.
According to Le Chatelier's principle, when temperature is increased, the equilibrium shifts in the direction that absorbs heat in order to oppose the change.
For an exothermic reaction, heat behaves like a product.
So, increasing temperature adds extra heat to the system.
Step 3: Determine the direction of equilibrium shift.
To consume the added heat, equilibrium shifts toward the endothermic direction.
The reverse reaction of ammonia formation is endothermic.
Therefore, increasing temperature favors the backward reaction.
Step 4: Final conclusion.
Hence, on increasing temperature,
\[
\boxed{\text{Backward reaction is favored}}
\]